Central banks around the world are shouldering ever-increasing policy burdens without an accompanying expansion of their policy tools. They have become policymakers of last resort, residual claimants of macroeconomic policy. As central banks take on the duty of addressing policy concerns other than inflation – and consequently take the blame for not completely solving those problems – other policymakers get a free hand in pursuing alternative goals, which may not be aligned with social welfare. The end result is that tools available to the central bank may be used excessively but ineffectively. Witness negative ... (full story)