The dominant policy position of most central banks is to maintain very low rates of inflation, without much consideration for how these restrictive policies impact the real economy – outcomes such as employment, investment, and economic growth. Although there is scant evidence that maintaining very low rates of inflation raises economic growth (see Epstein, 2003), such policies remain a key feature of mainstream or orthodox approaches to monetary policy. The ever-increasing financialization of the global economy contributes to this stance, as central banks feel pressure to maintain an attractive investment environment (one characterized by very low inflation and high interest rates) lest they run into balance-of-payments problems. This is particularly the case among developing and emerging market countries, where a central bank commitment to a (low) inflation target – to the exclusion of other targets such as employment – is perceived as an increasingly essential component of macroeconomic management. The result has been what many term the ‘deflationary bias’ of the global economy, where orthodox economic theory, combined with the policies deemed necessary to mollify highly mobile financial capital, result in sluggish economic growth and high unemployment.
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