IDEAS home Printed from https://ideas.repec.org/p/ime/imedps/12-e-10.html
   My bibliography  Save this paper

Central Banks - Paradise Lost

Author

Listed:
  • Otmar Issing

    (President, Center for Financial Studies, Goethe University Frankfurt (E-mail: issing@ifk-cfs.de))

Abstract

The focus of the paper is to analyze how the concept behind central bank policy developed over time and how the recent financial crisis and its consequences will have an influence. While the principles of the institutional arrangement for central banks (independence, clear mandate, prohibition of monetary financing) are relevant as ever, pre- crisis consensus strategies of monetary policy have been revealed as flawed. The close monitoring of money and credit developments, a key lesson to be drawn from the crisis, however, does not imply the extension of the central bank fs mandate to financial stability. As much as central banks should demonstrate modesty in what they deliver, equally their reputation should not be challenged further by other tasks imposed upon them.

Suggested Citation

  • Otmar Issing, 2012. "Central Banks - Paradise Lost," IMES Discussion Paper Series 12-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:12-e-10
    as

    Download full text from publisher

    File URL: https://www.imes.boj.or.jp/research/papers/english/12-E-10.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1169-1189.
    2. Tobias Adrian & Hyun Song Shin, 2009. "Prices and Quantities in the Monetary Policy Transmission Mechanism," International Journal of Central Banking, International Journal of Central Banking, vol. 5(4), pages 131-142, December.
    3. Claudio Borio, 2011. "Central banking post-crisis: What compass for uncharted waters?," BIS Working Papers 353, Bank for International Settlements.
    4. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    5. Mr. Otmar Issing, 2011. "Lessons for Monetary Policy: What Should the Consensus Be?," IMF Working Papers 2011/097, International Monetary Fund.
    6. John B. Taylor, 2007. "Housing and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 463-476.
    7. Issing,Otmar, 2008. "The Birth of the Euro," Cambridge Books, Cambridge University Press, number 9780521731867.
    8. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    9. Otmar Issing, 2001. "The EURO Area and the single monetary policy," Working Papers 44, Oesterreichische Nationalbank (Austrian Central Bank).
    10. Evanoff, Douglas D. & Kaufman, George G. & Malliaris, A. G. (ed.), 2012. "New Perspectives on Asset Price Bubbles," OUP Catalogue, Oxford University Press, number 9780199844333, Decembrie.
    11. Marvin Goodfriend, 2007. "How the World Achieved Consensus on Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 47-68, Fall.
    12. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, December.
    13. Athanasios Orphanides & Volker W. Wieland, 2008. "Economic projections and rules of thumb for monetary policy," Review, Federal Reserve Bank of St. Louis, vol. 90(Jul), pages 307-324.
    14. Issing, Otmar, 2001. "The Euro Area and the Single Monetary Policy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 277-288, October.
    15. Christina D. Romer & David Romer, 2002. "The evolution of economic understanding and postwar stabilization policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 11-78.
    16. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    17. Alex Cukierman, 2009. "The Limits of Transparency," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 38(1‐2), pages 1-37, February.
    18. Otmar Issing, 2011. "Lessons for monetary policy: what should the consensus be?," Globalization Institute Working Papers 81, Federal Reserve Bank of Dallas.
    19. Issing,Otmar & Gaspar,Vitor & Angeloni,Ignazio & Tristani,Oreste, 2001. "Monetary Policy in the Euro Area," Cambridge Books, Cambridge University Press, number 9780521783248.
    20. Henry C. Simons, 1936. "Rules versus Authorities in Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 44, pages 1-1.
    21. William R. White, 2010. "The Mayekawa Lecture: Some Alternative Perspectives on Macroeconomic Theory and Some Policy Implications," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 35-58, November.
    22. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-162, May.
    23. Issing,Otmar, 2008. "The Birth of the Euro," Cambridge Books, Cambridge University Press, number 9780521516730.
    24. Ansgar Belke & Robert Czudaj, 2010. "Is Euro Area Money Demand (Still) Stable? Cointegrated VAR Versus Single Equation Techniques," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(4), pages 285-315.
    25. Vasco Cúrdia & Michael Woodford, 2010. "Credit Spreads and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 3-35, September.
    26. Mervyn King, 1994. "Monetary policy in the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 15(3), pages 109-128, August.
    27. Evanoff, Douglas D. & Kaufman, George G. & Malliaris, A. G. (ed.), 2012. "New Perspectives on Asset Price Bubbles," OUP Catalogue, Oxford University Press, number 9780199844401, Decembrie.
    28. Goodfriend, Marvin, 2011. "Central banking in the credit turmoil: An assessment of Federal Reserve practice," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 1-12, January.
    29. Olivier Blanchard & Giovanni Dell’Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, September.
    30. Athanasios Orphanides, 2011. "New Paradigms in Central Banking?," Working Papers 2011-6, Central Bank of Cyprus.
    31. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    32. Winkler, Bernhard, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 26, European Central Bank.
    33. Frederic S. Mishkin, 2007. "Will monetary policy become more of a science?," Finance and Economics Discussion Series 2007-44, Board of Governors of the Federal Reserve System (U.S.).
    34. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, March.
    35. Otmar Issing, 2005. "Communication, transparency, accountability: monetary policy in the twenty-first century," Review, Federal Reserve Bank of St. Louis, vol. 87(Mar), pages 65-83.
    36. repec:pri:cepsud:161blinder is not listed on IDEAS
    37. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
    38. Athanasios Orphanides, 2002. "Monetary-Policy Rules and the Great Inflation," American Economic Review, American Economic Association, vol. 92(2), pages 115-120, May.
    39. Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, September.
    40. William R. White, 2010. "Some Alternative Perspectives on Macroeconomic Theory and Some Policy Implications," IMES Discussion Paper Series 10-E-15, Institute for Monetary and Economic Studies, Bank of Japan.
    41. Issing, Otmar, 2011. "Lessons for monetary policy: What should the consensus be?," CFS Working Paper Series 2011/13, Center for Financial Studies (CFS).
    42. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
    43. Hyun Jeong Kim & Hyun Song Shin & Jaeho Yun, 2012. "Monetary Aggregates and the Central Bank’s Financial Stability Mandate," Working Papers 2012-6, Economic Research Institute, Bank of Korea.
    44. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Masciandaro, Donato & Romelli, Davide, 2015. "Ups and downs of central bank independence from the Great Inflation to the Great Recession: theory, institutions and empirics," Financial History Review, Cambridge University Press, vol. 22(3), pages 259-289, December.
    2. Issing, Otmar, 2014. "Monetary policy and balance sheet adjustment," SAFE White Paper Series 15, Leibniz Institute for Financial Research SAFE.
    3. Cukierman, Alex, 2013. "Monetary policy and institutions before, during, and after the global financial crisis," Journal of Financial Stability, Elsevier, vol. 9(3), pages 373-384.
    4. Eva Zamrazilová, 2014. "Měnová politika: krátkodobá stabilizace versus dlouhodobá rizika [Monetary Policy: Short-Term Stabilization versus Long-Term Risks]," Politická ekonomie, Prague University of Economics and Business, vol. 2014(1), pages 3-31.
    5. Aleksandra Halka, 2015. "Lessons from the crisis.Did central banks do their homework?," NBP Working Papers 224, Narodowy Bank Polski.
    6. Borio, Claudio, 2014. "The financial cycle and macroeconomics: What have we learnt?," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 182-198.
    7. Issing, Otmar, 2013. "A new paradigm for monetary policy?," CFS Working Paper Series 2013/02, Center for Financial Studies (CFS).
    8. Remsperger, Hermann, 2013. "Überforderung statt Langeweile?," SAFE White Paper Series 3, Leibniz Institute for Financial Research SAFE.
    9. Aleksandra Halka, 2016. "How the central bank’s reaction function in small open economies evolved during the crisis," Bank i Kredyt, Narodowy Bank Polski, vol. 47(4), pages 301-318.
    10. Cukierman, Alex, 2019. "A retrospective on the subprime crisis and its aftermath ten years after Lehman’s collapse," Economic Systems, Elsevier, vol. 43(3).
    11. Cukierman, Alex, 2018. "A retrospective on the subprime crisis and its aftermath ten years after Lehman’s collapse," CEPR Discussion Papers 13373, C.E.P.R. Discussion Papers.
    12. Clément Fontan Fontan & Emmanuel Carré & Guillaume L'Oeillet, 2018. "Theoretical perspectives on the new era of central banking," Post-Print halshs-01866838, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Otmar Issing, 2012. "Central Banks - Paradise Lost," IMES Discussion Paper Series 12-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
    2. Issing, Otmar, 2012. "Central banks: Paradise lost," CFS Working Paper Series 2012/06, Center for Financial Studies (CFS).
    3. Otmar Issing, 2012. "The Mayekawa Lecture: Central Banks-Paradise Lost," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 30, pages 55-74, November.
    4. Otmar Issing, 2010. "The development of monetary policy in the 20th century – some reflections," Working Paper Research 186, National Bank of Belgium.
    5. Issing Otmar & Wieland Volker, 2013. "Monetary Theory and Monetary Policy: Reflections on the Development over the last 150 Years," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 233(3), pages 423-445, June.
    6. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093.
    7. Ricardo Reis, 2013. "Central Bank Design," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 17-44, Fall.
    8. Alesina, Alberto & Stella, Andrea, 2010. "The Politics of Monetary Policy," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 18, pages 1001-1054, Elsevier.
    9. Otmar Issing, 2011. "Lessons for monetary policy: what should the consensus be?," Globalization Institute Working Papers 81, Federal Reserve Bank of Dallas.
    10. Otmar Issing, 2009. "In search of monetary stability: the evolution of monetary policy," BIS Working Papers 273, Bank for International Settlements.
    11. Donato Masciandaro & Davide Romelli, 2019. "Behavioral Monetary Policymaking: Economics, Political Economy and Psychology," World Scientific Book Chapters, in: Behavioral Finance The Coming of Age, chapter 9, pages 285-329, World Scientific Publishing Co. Pte. Ltd..
    12. Mr. Otmar Issing, 2011. "Lessons for Monetary Policy: What Should the Consensus Be?," IMF Working Papers 2011/097, International Monetary Fund.
    13. Issing, Otmar, 2020. "Encompassing monetary policy strategy review," SAFE White Paper Series 68, Leibniz Institute for Financial Research SAFE.
    14. Issing, Otmar, 2011. "Lessons for monetary policy: What should the consensus be?," CFS Working Paper Series 2011/13, Center for Financial Studies (CFS).
    15. Issing, Otmar, 2018. "Stabiles Geld - eine Illusion? Alternative Währungssysteme - Hayeks Fundamentalkritik - Unabhängigkeit der Notenbanken," SAFE White Paper Series 52, Leibniz Institute for Financial Research SAFE.
    16. Masciandaro, Donato & Romelli, Davide, 2015. "Ups and downs of central bank independence from the Great Inflation to the Great Recession: theory, institutions and empirics," Financial History Review, Cambridge University Press, vol. 22(3), pages 259-289, December.
    17. Ngomba Bodi, Francis Ghislain & Tadadjeu Wemba, Dessy-Karl & Soulemanou, Soulemanou, 2020. "Transparence des Banques Centrales et efficacité de la politique monétaire : quelles implications pour la Banque des Etats de l’Afrique Centrale ? [Central Bank's Transparency and effectiveness of ," MPRA Paper 116436, University Library of Munich, Germany.
    18. Donato Masciandaro & Davide Romelli, 2018. "To Be or not to Be a Euro Country? The Behavioural Political Economics of Currency Unions," BAFFI CAREFIN Working Papers 1883, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    19. Issing, Otmar, 2013. "A new paradigm for monetary policy?," CFS Working Paper Series 2013/02, Center for Financial Studies (CFS).
    20. Ma, Yong & Li, Shushu, 2015. "Bayesian estimation of China's monetary policy transparency: A New Keynesian approach," Economic Modelling, Elsevier, vol. 45(C), pages 236-248.

    More about this item

    Keywords

    Central banking; Financial stability; Monetary policy;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ime:imedps:12-e-10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kinken (email available below). General contact details of provider: https://edirc.repec.org/data/imegvjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.