Thoughts on the Zero Lower Bound in Relation to Monetary and Financial Stability

Christian Noyer Gouverneur honoraire, Banque de France ; ancien président, Banque des règlements internationaux (BRI). Contact :

The prolonged coexistence of low interest rates and low inflation makes the task of central banks more complicated. In this context, their price stability mandate must be reiterated and strictly adhered to: their 2% target must be maintained, without upward or downward revisions, and their reaction function must aim to prevent any deviation from this target, in either direction. However, this mandate is currently facing three challenges: the potentially perverse effects of non-standard instruments on the banking sector, which requires finding the optimal mix of such tools; the structural rigidities of the European economy, which reduce the efficiency of monetary policy; and lastly, the emergence of risks for financial stability, in particular outside the banking sector, which call for a closer monitoring through macroprudential policy. In the future, protracted low equilibrium rates, the expansion of central bank balance sheets and the increased frequency of economic shocks could result in an in-depth rethinking of financial and monetary stability policies.

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