Mark Carney, the current head of Canada’s central bank who’ll take over the Bank of England next summer, is best known for his regulatory prowess. There was no financial collapse in Canada. But he may be about to make a major impact on revolutionizing monetary policy (via a must-read piece by Scott Sumner):
Addressing the Chartered Financial Analyst Society in Toronto, Mr Carney said that in major slumps: “To achieve a better path for the economy over time, a central bank may need to commit credibly to maintaining highly accommodative policy even after the economy and, potentially, inflation picks up.
“To ‘tie its hands’, a central bank could publicly announce precise numerical thresholds for inflation and unemployment that must be met before reducing stimulus.”
He added: “If yet further stimulus were required, the policy framework itself would likely have to be changed. For example, adopting a nominal GDP level target could in many respects be more powerful than employing thresholds under flexible inflation targeting.”
Given the hype — at least in economic policymaking circles — about Carney and his influential new gig, this is major, major news and shows that market monetarism continues to expand its influence (particularly since Michael Woodford presented his pro-NGDP targeting paper at Jackson Hole.)