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The euro and financial crisis: Should the ECB Extend Its Mandate Beyond Containing Inflation?

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  • Thomas Straubhaar
  • Henning Vöpel

Abstract

It is the European Central Bank’s task to safeguard price stability. In view of the debt crisis affecting several euro countries, should the ECB change course and engage in unlimited purchases of government bonds from countries hit by the crisis? What are the risks involved in pursuing such a policy? Thomas Straubhaar, HWWI and University of Hamburg, and Henning Vöpel, HWWI and Hamburg School of Business and Administration, believe that the ECB should play a more active role in addressing this acute crisis of confidence. However, it should not pursue a monetary policy intended to replace the structural convergence of the euro countries on the road to an optimal monetary area. On the contrary, it is the task of politics to safeguard convergence and prevent the ECB from playing a role that it ultimately cannot fulfil.

Suggested Citation

  • Thomas Straubhaar & Henning Vöpel, 2012. "The euro and financial crisis: Should the ECB Extend Its Mandate Beyond Containing Inflation?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 65(02), pages 04-07, January.
    • Handle: RePEc:ces:ifosdt:v:65:y:2012:i:02:p:04-07
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    References listed on IDEAS

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    1. Hans-Werner Sinn & Timo Wollmershäuser, 2012. "Target loans, current account balances and capital flows: the ECB’s rescue facility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(4), pages 468-508, August.
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    3. Peter Bernholz, 2003. "Monetary Regimes and Inflation," Books, Edward Elgar Publishing, number 2873.
    4. 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.
    5. Claudio E. V. Borio & Andrew Filardo, 2007. "Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation," BIS Working Papers 227, Bank for International Settlements.
    6. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Reiner Peter Hellbrück, 2012. "Regional Interest Rate Policy," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 65(15), pages 27-34, August.

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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