Growth and job creation is the product of a complex and collective process requiring complementary interventions across a wide range of areas. Our view is that macroeconomic policies are necessary, but not sufficient, in promoting sustainable growth and employment. This necessarily modest formulation thus eschews a fundamentalist approach to the role that macroeconomic stability plays in national economies. Of course, there will be situations and episodes when concerns about lack of macroeconomic stability become paramount – such as cases of hyper-inflation, out-of-control government budgets. Yet, these are the exceptions rather than the norm.
There is also the issue of what might be called perverse incentives. If, for example, central banks and finance ministries are given so-called ‘single mandates’ in which all they need to care about is the attainment and maintenance of macroeconomic stability guided by specific nominal targets, then they will indeed care about those targets to the exclusion, or at least insufficient consideration, of broader economic and social goals. Hence, we argue that key macroeconomic policy-making agencies should be empowered with a ‘dual mandate’. They should be guardians of stability, but they should also be active agents of development and structural transformation.
Having a dual mandate entails a specific implication. Given that the goals are now broader, there should be a correspondingly broader range of policy instruments. Otherwise, governments will be faced with painful trade-offs. For example, if a central bank wishes to pursue the goal of financial inclusion, it needs specific instruments to pursue that goal, while other instruments – such as the policy rate – can then be assigned to pursue the goal of price stability.
Reflections on development and governance 