Effectiveness of monetary policy As well as identifying where inflation dynamics have changed, it is equally important to be clear where we have made a conscious judgement that long-standing relationships remain intact. One such area is the effectiveness of monetary policy.
Many commentators have questioned whether monetary policy still works in the current environment.11 Some cite the low level of interest rates globally as a sign of ineffectiveness. Others highlight the relationship between economic activity and inflation outcomes (the Phillips Curve) being weaker than in the past, suggesting this points to a fundamental change in dynamics (figure 5).