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Monetary Policy Lessons from the Crisis

  • Athanasios Orphanides

    ()

    (Central Bank of Cyprus)

This paper provides a policymaker's perspective on some lessons from the recent financial crisis. It focuses on questions in three areas. First, what lessons can be drawn regarding the institutional framework for monetary policy? Has the experience changed the pre-crisis consensus that monetary policy is best performed by an independent central bank focused on achieving and maintaining price stability? Second, what lessons can be drawn regarding the monetary policy strategy that should be followed by a central bank? How activist should a central bank be in dampening macroeconomic fluctuations? Should the "output gap" serve as an important policy guide? Are there lessons regarding the stability-oriented approach followed by the ECB? How activist should a central bank be in tackling perceived asset price misalignments? Does the ECB's monetary analysis pillar help incorporate the pertinent information in formulating policy? Third, is monetary policy pursuing price stability enough to ensure overall stability in the economy? Or is there room for improvement regarding how central banks can contribute to financial stability? Should the role of monetary policy be seen as completely separate from the broader istitutional environment governing financial markets and institutions in our economy? Or would greater central bank involvement in regulation and supervision pertaining to credit and finance allow better management of overall economic stability?

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File URL: http://www.centralbank.gov.cy/media/pdf/NPWPE__No1_052010__.pdf
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Paper provided by Central Bank of Cyprus in its series Working Papers with number 2010-1.

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Length: 43 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:cyb:wpaper:2010-1
Contact details of provider: Web page: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=1

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  1. Athanasios Orphanides & John C. Williams, 2010. "Monetary policy mistakes and the evolution of inflation expectations," Working Paper Series 2010-12, Federal Reserve Bank of San Francisco.
  2. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  3. Beck, Günter & Wieland, Volker, 2007. "Money in Monetary Policy Design: A Formal Characterization of ECB-Style Cross-Checking," CEPR Discussion Papers 6097, C.E.P.R. Discussion Papers.
  4. Stephen G. Cecchetti & Hans Genberg & Sushil Wadhwani, 2002. "Asset Prices in a Flexible Inflation Targeting Framework," NBER Working Papers 8970, National Bureau of Economic Research, Inc.
  5. Thomas Laubach & John C. Williams, 2001. "Measuring the natural rate of interest," Finance and Economics Discussion Series 2001-56, Board of Governors of the Federal Reserve System (U.S.).
  6. Svensson, Lars E. O., 2002. "Inflation targeting: Should it be modeled as an instrument rule or a targeting rule?," European Economic Review, Elsevier, vol. 46(4-5), pages 771-780, May.
  7. Athanasios Orphanides & John C. Williams, 2002. "Robust Monetary Policy Rules with Unknown Natural Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 63-146.
  8. Athanasios Orphanides & John C. Williams, 2003. "The decline of activist stabilization policy: natural rate misperceptions, learning, and expectations," Working Paper Series 2003-24, Federal Reserve Bank of San Francisco.
  9. Athanasios Orphanides & John C. Williams, 2008. "Learning, Expectations Formation, And The Pitfalls Of Optimal Control Monetary Policy," CAMA Working Papers 2008-17, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  10. Clark, Todd E. & Kozicki, Sharon, 2005. "Estimating equilibrium real interest rates in real time," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 395-413, December.
  11. Stanley Fischer & Franco Modigliani, 1978. "Towards An Understanding of the Real Effects and Costs of Inflation," NBER Working Papers 0303, National Bureau of Economic Research, Inc.
  12. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
  13. Athanasios Orphanides & Simon van Norden, 1999. "The Reliability of Output Gap Estimates in Real Time," Macroeconomics 9907006, EconWPA.
  14. John B. Taylor & John C. Williams, 2010. "Simple and Robust Rules for Monetary Policy," NBER Working Papers 15908, National Bureau of Economic Research, Inc.
  15. Fischer, Stanley, 1981. "Towards an understanding of the costs of inflation: II," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 5-41, January.
  16. Tony Yates, 2004. "Monetary Policy and the Zero Bound to Interest Rates: A Review," Journal of Economic Surveys, Wiley Blackwell, vol. 18, pages 427-481, 07.
  17. Franco Modigliani & Lucas Papademos, 1975. "Targets for Monetary Policy in the Coming Year," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(1), pages 141-166.
  18. Michael Woodford & Vasco Curdia, 2010. "The Central Bank's Balance Sheet as an Instrument of Monetary Policy," 2010 Meeting Papers 136, Society for Economic Dynamics.
  19. Beck, Günter W. & Wieland, Volker, 2008. "Central bank misperceptions and the role of money in interest rate rules," CFS Working Paper Series 2008/25, Center for Financial Studies (CFS).
  20. Donald L. Kohn, 2009. "Monetary Policy and Asset Prices Revisited," Cato Journal, Cato Journal, Cato Institute, vol. 29(1), pages 31-44, Winter.
  21. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
  22. James Clouse & Dale Henderson & Athanasios Orphanides & David Small & Peter Tinsley, 2000. "Monetary policy when the nominal short-term interest rate is zero," Finance and Economics Discussion Series 2000-51, Board of Governors of the Federal Reserve System (U.S.).
  23. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 1-100.
  24. William R. White, 2006. "Is price stability enough?," BIS Working Papers 205, Bank for International Settlements.
  25. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
  26. Franco Modigliani & Lucas Papademos, 1978. "Optimal demand policies against stagflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 114(4), pages 736-782, December.
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