Do The Central Banks Always Do The Right Thing For Their Economies? An Appraisal Of The Monetary Policy Strategy Of The ECB
AbstractThe general aim of the paper is to address the doubts that too often the Central Banks’ tools and operations don’t fit for a fine tuning of the economies, and this is even more true in harsh times. The paper begins with an overview on the great failures respectively of the Federal Reserve, the so called "golden silence" in the 1929 Great Crash, and of the European Central Bank during the second great contraction, the 2008 Financial Crisis. Then I critically appraise the so-called “Two pillar approach”, a methodological tool employed by the ECB for assessing the risks to price stability. I survey the literature on the subject with the purpose of going at the roots of the “technical” difficulties. The first outcome emphasizes the existing disagreement between the criticisms and the proposed solutions. The second outcome is the unanimity of the opinions that the inflation target chosen at 2% by ECB for the Eurozone is too low, thereby making the whole MPS excessively restrictive. I conclude observing that the “core” inflation-target of 2% is in fact at the very basis of the ECB non-intervention policy. For a simple and sobering reason: even if between 2003 and 2008 the stock market bubble was growing at unreal rate, since the inflation target wasn’t in any jeopardy, the European Central Bank didn’t do anything. Maintaining the goal of price stability was much more important than assuring financial stability, thereby preventing the Financial Crisis.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 47085.
Date of creation: 19 May 2013
Date of revision:
Monetary Policy – Central Banking – European Central Bank – Inflation - Financial Crisis;
Find related papers by JEL classification:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-24 (All new papers)
- NEP-CBA-2013-05-24 (Central Banking)
- NEP-EEC-2013-05-24 (European Economics)
- NEP-MAC-2013-05-24 (Macroeconomics)
- NEP-MON-2013-05-24 (Monetary Economics)
- NEP-PKE-2013-05-24 (Post Keynesian Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bofinger, Peter, 2001. "Monetary Policy: Goals, Institutions, Strategies, and Instruments," OUP Catalogue, Oxford University Press, number 9780199248568.
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