Lessons from the crisis for monetary policy

Central banks are coming out of the crisis with their credibility damaged but their powers enhanced. The credibility has suffered for a variety of reasons, and details differ from country to country. Broadly, there are three charges: first, that they fuelled an unsustainable boom; secondly, that they failed to take adequate action to safeguard their financial systems from the risks of a collapse of the boom; thirdly that that they misjudged responses to the crisis in various ways, thus aggrav