The Bank for International Settlements (BIS) released an interesting piece of research entitled ‘Central Banking post-crisis: What compass for uncharted waters?’ by Claudio Borio The essay covers the challenges emerging from the crisis that central banks must face, these challenges are economic, intellectual, and institutional. The essay provides a “compass” for central banks to use in thinking about the challenges presented by the crisis, and more importantly the post-crisis environment. “The compass is based on tighter integration of the monetary and financial stability functions, keener awareness of the global dimensions of those tasks, and stronger safeguards for an increasingly vulnerable central bank operational independence.”
“During the Great Moderation, central banks sometimes came to be seen as all-powerful by the markets and the public at large. Nor, in all honesty, did they do much to dispel that belief. Now that the crisis has struck, they are facing enormous pressures to prove that they can manage the economy, restore full employment, ensure strong growth and preserve price stability. This, in fact, is a taller order than many believe, and one that central banks alone cannot deliver. To pretend otherwise risks undermining their credibility and public support in the longer run.”