A call for an end to aggressive monetary policy and a return to smart growth from an eminent researcher and former central banker.
Central banks took extraordinary measures to stabilize markets and enhance growth after the financial crisis of 2008, but without giving much thought to the long-term consequences. It was a response, Raghuram Rajan argues, that set a dangerous precedent: the more centrals bank did, the more they were expected to do, and the more they ended up doing. Monetary Policy and Its Unintended Consequences looks back at what this meant for where we are now.
A former central banker who foresaw the 2008 crisis and wrote a bestselling book about the risks of excessively accommodative monetary policy, Rajan takes a hard look at central bank behavior and its embrace of increasingly aggressive strategies to keep economies afloat. Despite efforts to strengthen markets, the 2020 pandemic showed economies remain as vulnerable as ever to adverse shocks, prompting large-scale interventions that, in the case of Covid, led to persistent inflation and market volatility. By examining these undertheorized outcomes, Rajan hopes central banks will recognize the unintended consequences of using all of the instruments available to them, which will encourage them to return to their core mandates of low inflation and financial stability.
Monetary Policy and Its Unintended Consequences is the most thorough account yet of the choices central banks have made to meet the economic challenges of our century and why they must rethink these choices.
Raghuram Rajan is Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago's Booth School. His books include The Third Pillar: How Markets and the State Leave the Community Behind, Saving Capitalism from the Capitalists, and Fault Lines: How Hidden Fractures Still Threaten the World Economy, which received the Financial Times-Goldman Sachs prize for best business book.
“This fascinating book is both a sobering and convincing assessment of the unintended consequences of the flurry of improvised, unorthodox monetary policies enacted by central banks in recent years. A must-read!”
Axel A. Weber, former President, Deutsche Bundesbank; former Chairman, UBS Group AG
“In this unique book world-renowned economist and former central bank governor, Rajan shows why central bankers got behind the curve and caused high inflation. He shows they should reform, focus on interest rate policy, financial stability, and policy rules through international agreements.”
John B. Taylor, Mary and Robert Raymond Professor of Economics, Stanford University; George P. Shultz Senior Fellow in Economics, The Hoover Institution; author of Reform of the International Monetary System: Why and How
“A powerful critique of the outsized role of central banks in the modern economy. Rajan's call for a humbler approach is all the more compelling given his stature as one of the giants in the field.”
Jeremy Stein, Moise Y. Safra Professor of Economics, Harvard University