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Sollbruchstelle: Deep Uncertainty and the Design of Monetary Institutions

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  • Susanne Lohmann

Abstract

Sollbruchstelle: this German engineering term translates as ‘part that is supposed to break down’. It stands for that part of a machine that is deliberately designed to be weaker, and less costly, than other parts of the machine so that it, rather than the more expensive parts, takes the hit when the machine comes under stress. A breakdown thus comes with little collateral damage and is fixed quickly and at low cost. ??This paper applies the idea of Sollbruchstelle to the design of fiat monetary institutions. Well‐designed institutions are credibly committed to follow a sound monetary policy. But they are also flexible in the face of deep uncertainty. They respond to novel economic and social developments as well as shifting understandings of the way the macroeconomy works. When necessary, they accommodate political pressures, renege on promises, and change their institutional stripes. As they become obsolete, they go gently into that good night – and if they must break down, they do so forgivingly.

Suggested Citation

  • Susanne Lohmann, 2000. "Sollbruchstelle: Deep Uncertainty and the Design of Monetary Institutions," International Finance, Wiley Blackwell, vol. 3(3), pages 391-411, November.
    • Handle: RePEc:bla:intfin:v:3:y:2000:i:3:p:391-411
    DOI: 10.1111/1468-2362.00058
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    Cited by:

    1. Mariano Tommasi, 2003. "Crises, institutions politiques et réformes politiques : le bon, le mauvais et l'affreux," Revue d’économie du développement, De Boeck Université, vol. 11(2), pages 49-81.
    2. Mariano Tommasi, 2002. "Crisis, Political Institutions and Policy Reform: It Is Not the Policy, It Is the Polity, Stupid," Working Papers 49, Universidad de San Andres, Departamento de Economia, revised Jun 2004.
    3. Peter J. Boettke & Alexander W. Salter & Daniel J. Smith, 2018. "Money as meta-rule: Buchanan’s constitutional economics as a foundation for monetary stability," Public Choice, Springer, vol. 176(3), pages 529-555, September.

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