How central bank mistakes after 2019 led to inflation

Dr Bryce Wilkinson
Graeme Wheeler
Research Note
26 July, 2022

A research note released today by The New Zealand Initiative mainly attributes the outbreak of inflation in many economies to central bank mistakes.

Co-authored by Graeme Wheeler, former Governor of the Reserve Bank of New Zealand, and Bryce Wilkinson, Senior Research Fellow at The New Zealand Initiative, the paper argues that central banks overall:

  • were too confident about their monetary policy framework;
  • were too confident about their models;
  • were too confident they could control output and employment;
  • lost their focus on price stability and took on too many mandates;
  • faced conflicts in some cases with conflicting ‘dual mandate’ objectives; and
  • were distracted by extraneous political objectives, such as climate change.

The foreword by Dr William White, former deputy Governor of the Bank of Canada and a former Economic Adviser and Division Head at the Bank for International Settlements, concurs: “Central bankers have fundamentally misread the nature of the system they are trying to control”, Dr White observes.

“The economic and financial consequences of central bank mistakes will be serious and felt world-wide,” said Dr Bryce Wilkinson. “The poorest and most vulnerable will be hit hardest by monetary policy errors.”

Graeme Wheeler concludes. “To begin restoring their damaged credibility, central banks must assess and acknowledge why their models and judgements were so inaccurate and inform the public on what steps they are taking to rebuild public confidence”.

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