Macro-Economic Dynamics and Policy

To develop better policy solutions to our economic and societal priorities we need to understand the dynamics of the macro-economy: that is, the interaction between the shocks affecting our economy, the propagation mechanisms through which these shocks are transmitted throughout the economy, and the monetary, macroprudential and fiscal policy choices made by the relevant authorities.

Monetary policy is the most flexible, and most frequently used official economic lever. There is hardly a corner of the economy monetary policy fails to reach, influencing growth, employment, inflation, mortgage costs, the exchange rate, and other financial markets.

Monetary policy has faced unprecedented challenges since the Great Financial Crisis, with policy interest rates close to rock bottom for a decade. Central banks have innovated with new instruments such as Quantitative Easing. NIESR is at the forefront of analysing what monetary policy should do next as it faces the challenges of higher inflation and normalizing balance sheets and interest rates, as well as understanding the effects of macroprudential policy tools.