Signe Krogstrup: Perspectives on central bank mandates, instruments and policy trade-offs

Speech by Ms Signe Krogstrup, Governor of the National Bank of Denmark, at the National Bank of Belgium on the subject of "Perspectives on central bank mandates, instruments and policy trade-offs", 26 April 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

It is an honour to be invited to speak at the National Bank of Belgium.

The role of central banks in the policy response to new challenges, such as climate change or the emergence of crypto-assets, fintech and big tech companies in the financial markets, is actively discussed. In this light, I will offer some perspectives on central bank mandates, instruments and policy trade-offs today, and hope to thereby set the stage for our subsequent discussion of these issues. But first some background.

The circumstances under which central banks operate have changed in recent decades. Central banks took centre stage in the economic policy mix to address the global financial crisis (GFC).

While most central bank mandates remain the same, the circumstances under which central banks operate have changed in many ways. Two developments stand out, with arguably important implications for current debates around what central banks should achieve.

First, hitting the effective lower bound. As policy rates became constrained by the proximity of the effective lower bound, many central banks shifted to using unconventional policy tools focused on steering long-term interest rates, risk premia or exchange rates, with differences across central bank approaches. For example, the Federal Reserve, the European Central Bank and the Bank of Japan have used balance sheet tools such as large-scale asset purchases, to steer financial conditions.