Russia and the « new monetary consensus »

The Central Bank of Russia has published a document on the change of its policy and the switch toward an inflation-targeting strategy[1]. The change is a relevant one, even if entailing more of a progressive adaptation than a radical turn. It is to openly make the CBR strategy to fall in line with those of other Central Bank like the FED, the CBE or the Bank of England. Such a policy is a result of the so-called “New Monetary Consensus”, which is sometimes called too “New Consensus on Macroeconomics”. It spread and became dominant among Central Banks from the end of the 80’s and the beginning of the 90’s and substituted the interest rate as the main anti-inflation weapon to attempt to control monetary mass aggregates. This so-called New Consensus has emerged as both an empirical and a theoretical reaction against models generated from the monetarist “counter-revolution”. It was a reaction against the impossibility to target monetary aggregates, but also one against what was by then perceived as theoretical inconsistencies. To some extent, they can be considered as following through the monetarist path. They include the neutrality of money in the long-term, and actually defines long-term by this neutrality. However, they admit imperfections and then rigidities for wages and prices. Hence money becomes non-neutral in the short-term.

Because of these rigidities, they are frequently qualified as “Neo-Keynesian” model. It seems however quite difficult to envision models without uncertainty or where banks and financial institutions are not mentioned as Keynesian ones. They could be more accurately be qualified as neo-Wiksellian[2]. Still they achieved a considerable degree of consensus in the academic world, and became the grounding for the Inflation Targeting strategy. However, the validity of the NMC has been put in doubt by the recent financial world crisis and not just by heterodox economists. There has been a growing feeling of disenchantment with the Inflation Targeting, which had pervaded form theoreticians to practitioners. One of the main protagonists has openly expressed his doubts recently[3]. The core of the new consensus has been attacked as unrealistic and potentially misleading[4].

Central Banks of developed countries have explicitly or tacitly dumped a part or the whole of this consensus in the wake of the current crisis. Reactions of the CBR to this crisis and to its developments Russia in the last months have shown that the monetary policy has been made the hostage of many conflicting factors. To some extent it has been more determined by a willingness to defend a given exchange rate than by any inflation targeting. Hence, it is the both the global validity of the NMC and its application to Russia, which can be questioned.

In this paper we will first examine the pretence of a new consensus in macroeconomics, and then how the Central Bank of Russia has made public its conversion to the new orthodoxy. We will then examine the roots of the Inflation Targeting strategy but also criticisms levied against such a strategy both from an internal and an external point of view. We will see, through the policy implemented by the Central Bank of Russia how do these criticisms apply to the Russia situation.

At this point, we will elaborate on to the contradiction characterising the policy of the Central bank of Russia, both on the short-term (with the exchange rate issue) and in the long-term.  Has the Central Bank played a fateful role in the current economic and financial crisis and would its policies have aggravated the situation of the banking system?

We will conclude by examining options open to the Central Bank of Russia.

Working paper / January 2010

Download the paper Russia and the new monetary consensus


[1] Central Bank of the Russian Federation, Guidelines for the Single State Monetary Policy in 2009 and for 2010 and 2011, Document approved by the Board of Directors, October 17th, 2008, Moscow, October 2008. (Hereafter Guidelines-2009)

[2] Mostly because of the distinction made between an “equilibrium” interest rate and the Central Bank interest rate. See M. Canzoneri, R.E. Cumby, B. Diba and D. Lopez-Salido, “Monetary Aggregates and Liquidity in a Neo-Wicksellian Framework”, NBER Working Paper Series, n° 14244, National Bureau of Economic Research, Cambridge, MA, 2008.

[3] A. Posen, “The Future of Inflation Targeting”, Challenge, Vol. 51, n° 4, 2008, pp. 5-22.

[4] Goodhart, C.A.E., “The Continuing Muddles of Monetary Theory: A Steadfast Refusal to Face facts”, paper presented to the 12th Conference of the Research Network macroeconomics and Macroeconomic Policy, Berlin, Germany, October 31st – November 1st, 2008.


Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s’est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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