Independent central banks played a critical role in bringing inflation down in the 1980s and 1990s. But in the current low-inflation environment, their exclusive focus on price stability imparts a deflationary bias to economic policy and is in tension with employment generation and growth. [Link]
A shockingly sloppy statement from one of the world’s most thoughtful economists. That was from Dani Rodrik in his most recent column in defence of economic populism.
Central banks have cut nominal interest rates to zero. They bought assets; increased the quantum of assets they bought; increased the range of assets they bought; re-invested proceeds from the assets they sold back into the assets; they tried negative interest rates and yet, Dani Rodrik thinks they impart a deflationary bias?!!
Financial conditions have eased remarkably since the Federal Reserve allegedly began tightening in the U.S. in 2014. There is a massive inflationary bias to asset prices in the world now. Perhaps, the deflationary bias in the prices of goods and services is related to the inflationary bias that monetary policy has imparted to asset prices.
Not taking cognisance of any of these in a seemingly throwaway remark is disappointingly thoughtless for a man whose intellectual depth and understanding of global issues have raised the bar so high for him. He needs to be conscious of that