How do Central Banks Learn? Political and Institutional Dynamics of Post-Crash Policy Change

Central banks have been doing a lot of learning since the financial crash of 2008. Yet political science scholarship has limited understanding of the process and content of lesson drawing and its implications. Learning as an inherently cognitive process is important in central banking, because ideas have a special status in the politics of money and finance, as price and financial stability, (tasks with which central banks are charged,) revolve arounds beliefs about economic performance past, present and future. However, the cognitive process of diagnosis and subsequent prescription is heavily shaped by existing political and institutional contexts. A much closer analysis of the two-way interactions between learning and the political and institutional settings in which such learning takes place is consequently required. To assist with this task, this paper proposes a four-fold typology of central bank learning based on post-2008 cases. These include: conversion, - based on the initial rise to prominence of macroprudential regulation in international policy networks and the adoption of this frame in the UK; permeation, - based on a slower more reluctant and pragmatic incorporation of a macroprudential policy frame in the United States; suppression, - involving a collective reluctance by central banks to revisit the existing institutional design of monetary policy frameworks, despite mounting arguments and evidence of the inadequacy of current inflation targeting arrangements, in anything other than a fleeting and sporadic fashion; and troubleshooting where outside politically empowered agents undertake a review that prompts central banks to engage more thoroughly with their own institutional standing, mandate and relationship with the wider political process. The purpose of the typology is to more fully specify the political and institutional drivers of change in post-crash central banking, including how this impacts on the durability and depth of policy change.