Central Banking

Show the new challenges facing central banks in the 21st century, especially in emerging market economies, in the age of artificial intelligence, climate change and financial volatility. The course starts by reviewing the role of Central Banks and Monetary Policy, a recap of monetary policy regimes, focusing on inflation targeting. Updating the inflation targeting regime is examined since in practice many emerging countries are using the complementarity of several monetary policy instruments. Interest rates are essential to combat inflation and ensure price stability. But to guarantee financial stability, which is part of the CBs' mandates, many countries are using macro-prudential instruments (to prevent excessive credit growth from turning into a financial crisis) and specific interventions in the foreign exchange markets. Then the course introduces the topic of environmental sustainability into the CB agenda. Climate change is already affecting the balance sheets of the financial system, insurance companies, etc. due to the increasing cost of more frequent extreme weather events. The objective of financial stability requires that this new type of risk, which is labelled Green Swans, be taken into account and better priced.