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What Monetary Policy after the Crisis?

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  • Philip Arestis
  • Malcolm Sawyer

Abstract

The objective of this paper is to reflect on some of the implications that recent economic experience has for monetary and financial stability policies. We contend that the financial crisis and the upsurge in inflation 2007-08 have shown that the policy model based on the new consensus in macroeconomics, which largely held sway over the past decade or more, is broken. It is argued that inflation targeting cannot deliver low inflation. We argue that fine-tuning through interest rates should not be attempted, but rather a constant real interest rate target based on the output growth rate should be adopted. The key objective of monetary policy should be shifted to financial stability, the independence of central banks should be brought to an end, and their decision making should be coordinated with other macroeconomic policy initiatives.

Suggested Citation

  • Philip Arestis & Malcolm Sawyer, 2010. "What Monetary Policy after the Crisis?," Review of Political Economy, Taylor & Francis Journals, vol. 22(4), pages 499-515.
    • Handle: RePEc:taf:revpoe:v:22:y:2010:i:4:p:499-515
    DOI: 10.1080/09538259.2010.510313
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    References listed on IDEAS

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    Cited by:

    1. Mario A Bertella & Henio A Rego & Celso Neris Jr. & Jonathas N Silva & Boris Podobnik & H Eugene Stanley, 2015. "Interaction between Fiscal and Monetary Policy in a Dynamic Nonlinear Model," PLOS ONE, Public Library of Science, vol. 10(3), pages 1-21, March.
    2. Alan Karaev K. & А. Караев К., 2017. "Нелинейная динамическая модель взаимодействия фискальной и монетарной политик России // A Nonlinear Dynamic Model of the Russian Fiscal and Monetary Policy Interaction," Экономика. Налоги. Право // Economics, taxes & law, ФГОБУ "Финансовый университет при Правительстве Российской Федерации" // Financial University under The Government of Russian Federation, vol. 10(3), pages 43-51.
    3. Carré, Emmanuel, 2013. "La cible d’inflation de la Fed : continuité ou rupture ?," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 14.
    4. Stefano Di Bucchianico, 2021. "Negative Interest Rate Policy to Fight Secular Stagnation: Unfeasible, Ineffective, Irrelevant, or Inadequate?," Review of Political Economy, Taylor & Francis Journals, vol. 33(4), pages 687-710, October.
    5. Mevlut Tatliyer, 2017. "Inflation targeting and the need for a new central banking framework," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 40(4), pages 512-539, October.
    6. Daniela Gabor, 2014. "Learning from Japan: The European Central Bank and the European Sovereign Debt Crisis," Review of Political Economy, Taylor & Francis Journals, vol. 26(2), pages 190-209, April.
    7. Arturo Hermann, 2012. "Policy responses to economic and financial crises: insights from heterodox economics and psychoanalysis," International Journal of Pluralism and Economics Education, Inderscience Enterprises Ltd, vol. 3(1), pages 8-22.
    8. Philip Arestis & Malcolm Sawyer, 2013. "Moving from Inflation Targeting to Prices and Incomes Policy," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 1-17, March.

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