A New Two-Pillar Strategy for the ECB
AbstractThe ECB has been arguing in the past that since there is no trade-off between price stability and financial stability, the pursuit of price stability is the best a central bank can do to also maintain financial stability. We argue that there is a potential trade-off between price stability and financial stability. In order to make this trade-off less constraining we propose that the two-pillar strategy of the ECB should be reformed. In this new two-pillar strategy, the ECB should pursue two objectives, i.e. price stability and financial stability. In this new strategy the interest rate should be used to achieve the inflation objective, while other instruments (minimum reserve requirements and macro prudential control) should be used to achieve financial stability.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2818.
Date of creation: 2009
Date of revision:
inflation targeting; financial stability; two pillar strategy;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
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