Should central banks respond to society’s current concerns?
In this May 2021 speech Isabel Schnabel outlines how central banks have the duty to tackle societal concerns while remaining within their mandates:
On inequality:
[M]ost experts agree that central banks do not have the tools to address inequality. But the absence of tools does not free central banks from carefully examining the distributional consequences of unconventional policy measures, and from taking such findings into account when weighing and calibrating policy options.
On green QE:
Given the high priority that European policymakers attach to climate protection, if purchases of two bond portfolios are deemed to provide a similar degree of monetary accommodation, but one of them has a lower carbon footprint, then the ECB should purchase the portfolio with the lower footprint.
On market neutrality:
[T]he “market neutrality” principle disregards any malign welfare effects that may arise if those that issue more bonds have a larger carbon footprint. It may therefore directly counteract efforts by the Union to reduce greenhouse gas emissions and accelerate the transition towards a green economy.
Societal responsibility and central bank independence
By: Isabel Schnabel – ECB
Does the importance of climate for society justify the role of central banks in shaping policy?
Lars Hansen sees three potential dangers:
i) attempts to take on a broader mission without formal and well defined mandates could compromise central bank independence in the longer run;
ii) hastily devised policy rules unsupported by quantitative modeling could backfire if or when climate policy targets are missed, harming reputations of central banks and weakening their ability to act in the future on a variety of fronts;
iii) climate change mitigation targets added to currently well defined mandates may generate excessive expectations and unwarranted confidence in the abilities of central banks to address this important social and economic problem while diverting the attention away from fiscal policy.
Central Banking Challenges Posed by Uncertain Climate Change and Natural Disasters
Author: Lars Hansen
From: University of Chicago
