Less Leeway for Central Banks

Many central banks have few leeway in the face of a possible worsening economic slowdown. Part of the solution to this problem is for governments to implement measures to stimulate the economy. This, however, would not be an ideal scenario, especially for countries where public debt is already very high and where concerns about long-term public finance sustainability could be questioned. Heavy pressure may therefore remain on central banks to find new ways of operating, especially in Europe and Japan. The monetary policy framework could be reviewed, entailing changes to inflation targets or alternatives to those targets. In addition, theuse of unconventional tools could become even more widespread with the possible introduction of monetary financing, commonly referred to as “helicopter money.”