Since the early 1990s, when the period of the “Great Moderation” began and the combination of technological progress, deregulation and globalization generated a virtuous cycle of growth with low inflation, central banks were living in the sweet spot. With inflation stabilized around the 2% target, or even below, all they had to do was manage the business cycle, raising rates very gradually when the economy grew above potential. Although the objective was price stability, the reality is that central banks were dedicated to stabilizing growth and unemployment, since inflation depended on fluctuations in demand.
Monetary policy during those decades was straightforward and did not require difficult or controversial decisions. Debates focused on minor issues, such as assessing if the effort to avoid weak inflation was excessive – for example, the potential side effects of zero interest rates or asset purchases. Granted, it was a…
