The basic principles of the functioning of central banks (from the Barro-Gordon model of the early 1980s) were wrong from the outset

In most countries, t he institutional organisation of central banks (independent, inflation-targeting central banks) dates back to the early 1980s and the famous Barro-Gordon model. If central banks are answerable to governments, they will try to stimulate production and reduce unemployment, which will merely give rise to pointless inflation, because, after a while, it will be expected. Central banks must therefore be independent and have a single inflation objective to avoid giving rise to this inflationary bias. But the founding model is simplistic and has led to highly debatable operating rules for central banks: In the model, t he cost of an abnormally expansionary monetary policy is excessive goods inflation. It does not introduce other costs (asset price bubbles, overindebtedness), which has led central banks to adopt inflation targets instead of more complex objectives (inflation in goods and asset prices, indebtedness, etc.); The model does not incorporate real growth. If it did, monetary policy could have had a nominal growth objective (growth in nominal GDP) instead of just an inflation objective, which would have had many advantages; The model assumes that in the long run, monetary policy has an effect only on inflation and not on the real equilibrium. This allows there to be a dichotomy between monetary policy (which has an effect only on inflation in the long run) and other economic policies (which have effects on the real economy). But in reality, monetary policy does have effects on the real equilibrium in the long run (via real interest rates, asset prices, redistributive effects, etc.). So monetary policy cannot be disassociated from the other economic policies - rather, it must be coordinated with them. This calls for an overhaul of m onetary policy arrangements and objectives.