## New Worries for Central Bankers

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**Canonical URL:** [New Worries for Central Bankers](https://www.imf.org/-/media/files/publications/fandd/article/2023/march/editor-letter-future-monetary-policy.pdf)

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### Context and emerging challenges
- The era of low inflation and low interest rates is ending; central banks are "in the spotlight" as the world awaits their next moves.
- Structural forces complicating monetary policy: geopolitical fragmentation, climate change, an aging workforce, and the advent of digital money.
- Central bank mandates and independence face increasing political pressure.
- Economic backdrop is rapidly changing, leaving less maneuvering room for policy and raising questions about how monetary policy may need to change going forward.

### Key observations and analysis from contributors
- Existing models missed the recent inflation surge, indicating a need for improved tools (Gita Gopinath).
- In a post-pandemic world with higher inflation, lower growth, and more debt, central banks may still be operating with policies modeled for conditions of tepid inflation, low interest rates, and robust growth (Markus Brunnermeier).
- Central banks should refocus on their primary role—price stability—while respecting financial stability (Raghuram Rajan: "Less is more").
- Exceptional circumstances, such as the pandemic, may call for temporary cooperation between monetary and fiscal authorities—but not at the cost of central bank independence (Giancarlo Corsetti).
- Groupthink can threaten central bankers' credibility; measures to avoid it are important (David G. Blanchflower and Andrew T. Levin).
- New models can help understand monetary policy’s influence on income and wealth distribution (Greg Kaplan and coauthors).
- Improved monetary policy communications can shape expectations (Michael Weber).

### Policy implications and recommendations
- Update and improve economic models to better capture inflation dynamics and structural shifts.
- Reassess monetary policy frameworks and mandates in light of structural forces and heightened political pressures.
- Prioritize price stability while maintaining attention to financial stability risks.
- Limit cooperation between monetary and fiscal authorities to exceptional, temporary circumstances that preserve central bank independence.
- Encourage diversity of thought and structural safeguards to prevent groupthink among monetary policymakers.
- Develop models and analyses that explicitly address distributional effects of monetary policy.
- Enhance communication strategies to manage expectations effectively.

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2023/march/editor-letter-future-monetary-policy.pdf_