Description
Over the past two decades, there have been several radical shifts in the thinking of most Western central banks, especially when it comes to issues of financial stability, fiscal policy, and climate action. Contrary to what the currently dominant punctuated equilibrium models might make us expect, many of the most important ideational shifts have unfolded in periods of relative calm, rather than during periods of crisis. The shifts themselves, moreover, can be grouped into different categories based on the rapidity with which they occurred, the depth of the changes (i.e. the extent to which ideational changes have been translated into institutional change), and the types of actors that were driving these changes. In this paper we argue that to understand which modality of ideational change predominates in different policy areas, we have to pay attention to four factors. First, the extent to which fundamental changes can be incorporated into the institutional structure without challenging currently dominant self-identities of central bankers. Second, the extent to which different departments within the central bank have already been laying the groundwork for the establishment of a new paradigm prior to the ideational shift. Third, the ease with which prior institutional elements can be changed to accommodate the new ideas. Fourth, the institutional links that central bankers have established with outside actors, which determine the trade-offs associated with different types of change. In highlighting the role of these contextual factors, we show how constellations favouring radical change are just as likely to emerge during relatively calm periods as during moments of crisis. While we use policy change at the ECB as our main case study, we argue that the theoretical insights gleaned from the analysis should be relevant to central banking more generally.
