"Uncertainty" indicated a critical post Keynesian argument against neoclassical monetarism, but was taken up by the European Central Bank (ECB) in order to emphasize the importance of the money supply indicator in its "two pillar" strategy. In a state of model uncertainty on behalf of market and policy agents, the quantity of money is meant to control long-term inflation expectations. However, the instability of money demand and the intention to reject the responsibility for the cycle leads the ECB to modify the quantity theory towards a credit theory of nominal income. The ECB decides on the validity of the money-inflation nexus in a discretionary way and thus undermines the credibility of the monetary pillar. Lack of information is also offered in order to defend the ECB’s single price-stability target. Following only this target is suboptimal on welfare-theoretic grounds as the ECB indirectly accepts the non-neutrality of money.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Find related papers by JEL classification: E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies