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New Paradigms in Central Banking?

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  • Athanasios Orphanides

    ()
    (Central Bank of Cyprus)

Abstract

This paper reviews whether and how the ongoing financial crisis has influenced central banking policy practice. Taking a historical perspective, it argues that throughout the existence of central banks the main objective has remained the same¯stability. What has been evolving over time, and has been influenced by the crisis, is our understanding about how to achieve and maintain stability over time. The paper focuses on the role and relative importance of price stability, economic stability and financial stability arguing that while the crisis has not materially shifted views regarding the monetary policy framework, it has highlighted the need for greater emphasis on financial stability than was appreciated before the crisis. It further argues that central banks must not only have a strong role in macro-prudential supervision but have more direct involvement in micro-supervision of the banking sector. Lastly, the paper argues that the crisis has reaffirmed that strong economic governance is a prerequisite for stability in a monetary union and, in the context of the euro area sovereign crisis, discusses the tremendous costs stemming from of lack of sufficient progress regarding economic governance going forward.

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File URL: http://www.centralbank.gov.cy/media/pdf/NPWPE_No6_112011.pdf
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Bibliographic Info

Paper provided by Central Bank of Cyprus in its series Working Papers with number 2011-6.

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Length: 31 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:cyb:wpaper:2011-6

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Web page: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=1
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Related research

Keywords: Monetary policy; financial stability; economic governance; micro-prudential supervision; macro-prudential supervision;

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References

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  1. Athanasios Orphanides & John C. Williams, 2010. "Monetary Policy Mistakes and the Evolution of Inflation Expectations," Working Papers 2010-2, Central Bank of Cyprus.
  2. Athanasios Orphanides & John C. Williams, 2002. "Robust Monetary Policy Rules with Unknown Natural Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 63-146.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. What is wrong with European central banking: the view from Cyprus
    by Economic Logician in Economic Logic on 2012-06-07 14:56:00

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