William White: Are Central Banks Trying To Do Too Much?

Welcome to our new video series called "New Economic Thinking." The series will feature dozens of conversations with leading economists on the most important issues facing economics and the global economy today.

This episode features William White, chairman of the Economic Development and Review Committee (EDRC) at the OECD in Paris. White explores whether central bankers are now being asked to do too much: whether in pursuit of elusive goal of financial stability, central bankers are risking the hard won gains of previous decades, and undermining their popular legitimacy in the process. Below is an introduction from interviewer and Director of Institutional Partnerships Marshall Auerback

The breakdown of the Bretton Woods system ushered in an unprecedented phase for the world economy.

At no other time in modern history had the world seen the prices of goods and services rising so fast, for so long, and in so many countries. Led by figures such as Paul Volcker, central bankers appeared to succeed in restoring long elusive price stability and ushered in a 30-year bull market in financial assets as a consequence. Developed economies in particular experienced a long period of stability in terms of inflation and economic growth, which prompted U.S. economists to call this period the “Great Moderation.” Central bankers looked like omniscient heroes.

On the financial side, however, things were not as smooth, as the financial fragility of the economy increased and several financial crises occurred. In the U.S. alone, there was the Savings and Loan crisis, the Long-Term Capital Management crisis, and the dot-com bubble. Even though the effect of these crises on the economy was contained through government and central bank interventions that had been growing in size since the 1960s, questions were beginning to arise about monetary policy and the rise of moral hazard as a consequence of responses to these recurrent episodes of systemic instability.

In the wake of the Great Financial Crisis of 2008, central bankers have been forced to adopt increasingly unconventional policies in order to try to mitigate the worst effect of the fallout. But have they gone too far? Have we reached a point where the unintended consequences of the “cure” actually worse than the disease? This question is one that has increasingly agitated prominent central banking practitioners, such as William White, currently chairman of the Economic Development and Review Committee (EDRC) at the OECD in Paris and formerly with the Bank of International Settlements, Bank of England, and Bank of Canada.

In the above interview, White explores whether central bankers are now being asked to do too much: whether in pursuit of elusive goal of financial stability, central bankers are risking the hard won gains of previous decades, and undermining their popular legitimacy in the process. Watch the interview to see what he has to say!