Impact of the Great Recession on Central Banking

The Fed has performed numerous actions for the first time in its history, and others for the first time in half a century in reaction to the Great Recession. Though there is considerable debate about whether it acted correctly or not, there is little debate on the fact that it has exceeded several invisible boundaries by acting in the various ways that it did. Here is Bernanke on the role of the current crisis on the Fed:

The financial crisis of 2008 and 2009 will leave a lasting imprint on the theory and practice of central banking. With respect to monetary policy, the basic principles of flexible inflation targeting–the commitment to a medium-term inflation objective, the flexibility to address deviations from full employment, and an emphasis on communication and transparency–seem destined to survive. However, following a much older tradition of central banking, the crisis has forcefully reminded us that the responsibility of central banks to protect financial stability is at least as important as the responsibility to use monetary policy effectively in the pursuit of macroeconomic objectives. [link]

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