OECD Countries’ Monetary Policies are Faced with Structurally Low Inflation and the Growing Inefficiency of these Policies

OECD countries’ monetary policies are faced with a new situation. First, inflation in OECD countries is becoming increasingly lower due to structural causes: decline in wage earners’ bargaining power in labour markets, prolonged decline in commodity prices. This has driven central banks, which have kept their former inflation targets, to conduct expansionary monetary policies. Second, monetary policies in OECD countries are less and less efficient in boosting activity and inflation, especially due to the continuous rise in debt ratios, which has eliminated the monetary policy credit channel. The combination of inflation that is structurally lower than central banks’ inflation target and the growing inefficiency of monetary policies is leading to a growing expansionary bias of monetary policies, with the associated risks: asset price bubbles, excessive liquidity flowing between different asset classes and currencies, and excessive variability of asset prices and exchange rates.