Monetary policy puts itself centre stage in global economy epic

Central bankers are a cautious bunch, not known for bouts of irrational exuberance. Bank of England governor Mervyn King once said that his aim was to make monetary policy boring. The governor is not usually associated with failure but making monetary policy dull is one ambition that has eluded him. Instead, it has moved centre stage in the action packed drama of saving the world economy.

What the banks have done has been extraordinary and largely without precedent. It has not been dreamt up on the spur of the moment; most of it is well explored and understood in the academic literature, including studies by Ben Bernanke himself. But the scale has been breathtaking; if this is an experiment it is a pretty punchy one. Since 2008, when central banks around the world stepped in to counter global slowdowns, policy has generally been aligned even if the precise execution has differed from one to the next. But that has changed; now we see banks heading in different directions. This is vaguely unsettling.

Australia, India and China have tightened but the US Fed has just announced another $600 billion splurge over the next eight months. Our own Monetary Policy Committee must be having interesting meetings right now, with a majority inclined to sit on their hands while Andrew Sentance argues cogently for a move towards a more "normal" monetary stance and Adam Posen pushes for the opposite. Across the Channel, in what by now is probably a dark and very chilly Frankfurt, the ECB is waving its arms around like a demented windmill flagging policy tightening ahead.

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Some of this makes sense, up to a point. Australia and India are indeed seeing a whiff of inflation. In China the problem is not so much one of generalised inflation (though local housing markets in some eastern cities did go wild) but the consequences of the "wrong kind" of lending through state controlled banks. Other emerging Asian economies are tightening too following very robust recoveries from downturns that were barely perceptible by western standards.

There's logic to this but you can soon turn it inside out; these are economies suffering excess capital inflows and squeaking about upward pressure on their currencies. Raising domestic interest rates may not achieve the desired calming if all it does is make local currency bonds even more attractive.

Going to the opposite extreme, "Helicopter Ben" Bernanke is living up to his nickname to try to fulfil the Fed's balanced mandate. Unemployment is too high and inflation is too low and all those checks and balances written into the constitution are about to show us just how damaging they can be as fiscal policy goes into stasis. Again there's logic; deflation is still a bigger immediate risk than inflation but there's a real risk that fixing one may bring on the other.

If I were on the UK MPC I'd be sitting back and watching too.GDP has been quite robust in 2010 and ahead of the rise in VAT in January 2011 this final quarter is likely to hold up well. Policy making will be better informed by how we get on in the New Year, when it will all get much tougher.

So yet again the odd man out appears to be the European Central Bank under the ever obtuse Jean-Claude Trichet. A man from Mars sporting a decent economics degree would wonder why, with economies across the Eurozone ranging from weak to catastrophic, tighter fiscal policy made any sense. So do I.

Someone, somewhere is starting to make mistakes. Maybe those tightening emerging economies, using the wrong kit to put out the wrong fires; maybe the US Fed, risking an inflationary breakout when all that hot off the press money rolls back into the US economy; maybe M Trichet.

My money would be on the ECB, but with the world economy lobbing surprise after surprise at us it is best to keep an open mind. As the consensus among the central banks starts to crumble, though, it is increasingly likely that something will go pop somewhere and with the stakes as high as they are it may make a nasty mess. Sorry but we can't relax yet; 2011 looks like another bumpy year.

• Peter Bickley is a consultant economist.