Central Banks as Agents of Employment Creation

Gerald A. Epstein, University of Massachusetts - Amherst

Abstract

Employment creation has dropped off the direct agenda of most central banks. Th e so-called “global best practice” approach to central banking has not focused on economic growth or employment generation but rather on keeping infl ation in the low single digits. However, the policy record shows that employment generation and economic growth are often not by-products of infl ation focused central bank policy. Th is chapter argues that there should be a return to the historical norm of central bank policy in which employment creation and more rapid economic growth join infl ation and stabilization more generally as key goals of central bank policy. Supporting this argument, the chapter summarizes major lessons of a multi-country research project undertaken by an international team of economists which show that, within the constraints of contemporary economic conditions, there are viable alternatives to infl ation targeting that can focus more on important social, real sector outcomes such as employment generation and poverty reduction.