There are two ways, the world’s central bankers learned at this year’s Jackson Hole conference, to tame a horse. You can break the animal with fear, but it will never forget the pain. The kinder way, shown to attendees one evening, is to set consistent boundaries with gentle consequences (noisy clapping). This, says Martins Kazaks of the Bank of Latvia, is like central banking. Although you can raise interest rates to crush inflation, causing a recession, it is better when everyone believes in the inflation target, so nobody raises prices and wages too much in the first place. If the boundaries are credible, the bank can be gentler.
