The efficacy of monetary policy in an age of financialisation and climate change

Monetary policy is inevitably operated by a central bank in the context of a specific banking and financial system and responding to the economic issues of the time. Financialisation in the present era, broadly the past four decades, has not only involved the continuing growth of the financial sector but also a more market-orientated banking system, development of securitisation, and growth of shadow banking. The past decade has also seen the adoption of quantitative easing (QE) and other forms of ‘unconventional’ monetary policy. This chapter explores the implications of aspects of financialisation for the transmission mechanisms of monetary policy and the objectives of monetary policy. It also considers the future of inflation targeting in light of experience, and financial stability as a key objective of monetary policy. The challenges of climate change and the possible implications for monetary policy are also considered.