‘Certainly Higher’
Another driver of change is that the doctrine of central-bank independence was forged in an era of surging prices. But rich countries now face the opposite problem: deflationary forces. At one point this year, more than $17 trillion of debt -- mostly in Europe and Japan -- was yielding less than zero.
Italian economist Guido Tabellini says that backdrop has forced him to change his views. A professor of economics at Bocconi University, Tabellini co-wrote a paper on central bank independence in the 1990s, when the European Central Bank was being created.
“The benefit of monetary-fiscal policy coordination is certainly higher now,’’ he said, and there’s a case for easing the curbs on financing government debt -- which can be done without sacrificing central-bank independence.
It’s not as if there’s been no cooperation in the past decade.
After the 2008 crash, central banks routinely worked with governments. Sometimes they pushed against the boundaries of their mandates –- like when the ECB’s Mario Draghi put a central-bank backstop behind government debt, by promising to do “whatever it takes’’ to save the euro.
Collaborate -- Or Fight?
But if the post-crisis environment has strengthened the theoretical case for working together, in practice it’s often led to unusually fraught relations between politicians and technocrats.
Trump’s onslaught against Powell, and Bank of England chief Mark Carney’s disagreements with pro-Brexit politicians like Prime Minister Boris Johnson, are just two examples.
It’s in Japan that collaboration has been taken furthest.
The Bank of Japan has been a key player in Prime Minister Shinzo Abe’s plan to reflate the economy with a mix of monetary stimulus and fiscal spending. It now holds 43% of the national debt, which is the world’s largest.
‘Like It or Not...’
In theory, that debt hasn’t been monetized. In reality, most analysts think it has, and the sky hasn’t fallen in.