The events since 2007 have provided a significant challenge to the orthodox settlement on monetary and fiscal policy. A policy framework based on a broad inflation targeting regime (including targets for output and employment) appeared to be very successful in reducing the volatility of inflation and output (the so-called Great Moderation). With fiscal policy operating to help smooth the business cycle somewhat with automatic stabilisers.  However, following the financial storm, the zero interest rate floor was found to act as a significant constraint on interest rate policy and subsequently many cracks in the financial architecture appeared, and led to the use of alternative or complementary instruments of policy.  There has also been an extensive debate on the extent that we may need to develop further instruments of monetary policy to complement financial regulation and possibly deal with structural questions such as global imbalances. 

The ongoing financial crisis has asked some very hard questions of modern macroeconomics, an important aspect of which has been to develop models that allow us to understand macroeconomic fluctuations using decision rules derived from microeconomic principles. The resulting prescriptions for monetary policy pay much more attention to the calculation of optimal feedback rules under

uncertainty, learning and various forms of price and wage rigidity. A new Science of Monetary Policy Making  had replaced the Art of Central Banking and a generation of economists and policy-makers now consider the monetary policy problem from within the narrow confines of short term interest rate targeting.  Some new thinking is now required.

Accordingly, this series of conference and books will address key issues in macroeconomic policy by commissioning papers from leading macroeconomists and policymaker on a sequence of topics as we try to re-build a new consensus on monetary, fiscal and financial policy

Jagjit Chadha and Sean Holly, February 2013

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Programme added - Effective Macroprudential Instruments Conference