Financial Stability and Central Banking

Not long time ago, monetary policy had an unusual appeal. Central bankers and economists felt that monetary policy, by returning the economy to a path of low inflation would have a stabilizing effect. What professor Mervin Goodfriend of Carnegie Mellon University calls the «the new consensos monetary policy», Clarida, Galí and Gertler (1999), «the new keynesian synthesis» or Michael Woodford (2003)«the wicksellian approach» is a collection of ideas framed by the experience of early 1980s, when after a painful process inflation was abated, but adapted to change conditions since then. In a twist from the influential monetarist doctrine, according to which the control of inflation was to be effected by the control of the money growth, the anti-inflation stance of the new consensus comes from the «credibility» of determined, independent and courageous central banks, which will anchor inflationary expectations through the management of the inflation targeting principle.