eichengreen150_OLIVIER MATTHYSPOOLAFP via Getty Images_christine lagarde Olivier Matthys/Pool/AFP via Getty Images

New-Model Central Banks

Monetary authorities are increasingly expected to address issues such as climate change and inequality, over the objections of those who insist that central banks' narrow mandate is what sustains their operational independence. But ignoring these issues, or saying they're someone else's problem, is no longer an option.

BERKELEY – We are used to thinking about the remit of central banks as focusing narrowly on price stability, or at most as targeting inflation while ensuring the smooth operation of the payment system. But with the global financial crisis of 2008 and now COVID-19, we have seen central banks intervening to support a growing range of markets and activities, using instruments that extend well beyond interest rates and open market operations.

An example is the US Federal Reserve’s Paycheck Protection Program Liquidity Facility, under which the Fed provides liquidity to lenders who extend loans to small businesses in pandemic-related distress. This, clearly, is not your mother’s central bank.

Now we hear calls to broaden this ambit still further. European Central Bank President Christine Lagarde and Fed board member Lael Brainard have each urged central banks to tackle climate change. Against the backdrop of the Black Lives Matter movement, US Representative Maxine Waters of California has pushed Fed Chair Jerome Powell to do more about inequality, including specifically racial inequality.

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