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Crossing the Rubicon of Price Stability

The traditionally conservative world of monetary policymaking is undergoing a revolution, with many central bankers now aiming to align their institutions with efforts to combat global warming and inequality. How can policymakers best address these issues with their existing mandates and tools – and should they tackle others, too?

In this Big Picture, Daniel Gros of the Centre for European Policy Studies says that greening Europe’s monetary policy would encroach on the responsibilities of governments, and is thus incompatible with central banks’ political independence. But Barry Eichengreen of the University of California, Berkeley, explains why central banks can no longer shy away from addressing climate change and inequality, and advises them to direct their regulatory powers at these problems while using monetary policy to target inflation.

BlackRock’s Isabelle Mateos y Lago goes further, arguing that central banks’ mandates – and specifically, the need to maintain financial stability – not only permit but require them to incorporate climate change into their policies. Likewise, Megan Greene of Harvard University’s John F. Kennedy School of Government urges the US Federal Reserve to use its discount window to encourage climate-friendly investments and financing.

But Jean Pisani-Ferry, while acknowledging that central banks need to address these challenges, argues that explicitly amending their missions would be preferable to letting monetary policymakers decide how their tasks should evolve.

Broadening the debate further, Anita Bhatia of UN Women calls for gender-responsive central banking, and outlines four ways in which monetary policy must change in order to combat the COVID-19 pandemic’s disproportionate impact on women.

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