GENEVA/LONDON — Central banks around the world responded to the inflationary period following Covid-19 by raising interest rates. Now that inflation seems to be largely under control, monetary policymakers must begin preparing for the next crisis by expanding their toolkit.

This is particularly important because we may soon return to the situation of the 2010s, when nominal interest rates were close to zero and central banks were unable to stimulate demand by cutting them. Policymakers ended up using 'unconventional' tools — notably quantitative easing — that were later found to have limited effects on aggregate demand and to have inflated asset prices, thereby contributing to financial volatility and rising inequality.