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Lessons for monetary policy: what should the consensus be?

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  • Otmar Issing

Abstract

This paper outlines important lessons for monetary policy. In particular, the role of inflation targeting, which was much acclaimed prior to the financial crisis and since then has not lost much of its endorsement, is critically reviewed. Ignoring the relation between monetary policy and asset prices, as is the case in this monetary policy approach, can lead to financial instability. In contrast, giving, inter alia, monetary factors a role in central banks' policy decisions, as is done in the ECB's encompassing approach, helps prevent these potentially harmful side effects and thus allows for fostering financial stability. Finally, this paper makes a case against increasing the central banks' inflation target.

Suggested Citation

  • Otmar Issing, 2011. "Lessons for monetary policy: what should the consensus be?," Globalization and Monetary Policy Institute Working Paper 81, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:81
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    File URL: http://www.dallasfed.org/assets/documents/institute/wpapers/2011/0081.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Issing, Otmar, 2014. "Monetary policy and balance sheet adjustment," SAFE White Paper Series 15, Goethe University Frankfurt, Research Center SAFE - Sustainable Architecture for Finance in Europe.
    2. Ravn, Søren Hove, 2014. "Asymmetric monetary policy towards the stock market: A DSGE approach," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 24-41.
    3. Emmanuel Carré & Jézabel Couppey-Soubeyran & Salim Dehmej, 2015. "La coordination entre politique monétaire et politique macroprudentielle. Que disent les modèles dsge ?," Revue économique, Presses de Sciences-Po, vol. 66(3), pages 541-572.
    4. Issing Otmar & Wieland Volker, 2013. "Monetary Theory and Monetary Policy: Reflections on the Development over the last 150 Years," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 233(3), pages 423-445, June.
    5. Issing, Otmar, 2016. "Central banks: From overburdening to decline?," SAFE White Paper Series 42, Goethe University Frankfurt, Research Center SAFE - Sustainable Architecture for Finance in Europe.
    6. Roseline Nyakerario Misati & Esman Morekwa Nyamongo & Lucas Kamau Njoroge & Sheila Kaminchia, 2012. "Feasibility of inflation targeting in an emerging market: evidence from Kenya," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 4(2), pages 146-159, May.
    7. Dumitriu, Ramona & Stefanescu, Razvan, 2014. "Perspective ale ţintirii inflaţiei
      [Perspectives of the Inflation Targeting]
      ," MPRA Paper 52943, University Library of Munich, Germany, revised 14 Jan 2014.
    8. repec:bla:obuest:v:79:y:2017:i:3:p:395-410 is not listed on IDEAS
    9. Philipp M. Hildebrand, 2013. "Why Central Banks Need a Macroeconomic Toolkit," Chapters,in: Stability of the Financial System, chapter 23 Edward Elgar Publishing.
    10. Käfer Benjamin, 2014. "The Taylor Rule and Financial Stability – A Literature Review with Application for the Eurozone," Review of Economics, De Gruyter, vol. 65(2), pages 159-192, August.
    11. repec:wsi:serxxx:v:59:y:2014:i:02:n:s0217590814800010 is not listed on IDEAS
    12. Hlebik Sviatlana & Verga Giovanni, 2015. "The European Central Bank Quantitative Policy and Its Consistency with the Demand for Liquidity," Scientific Annals of Economics and Business, De Gruyter Open, vol. 62(3), pages 425-451, November.

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    Keywords

    Financial markets ; Monetary policy ; Banks and banking; Central;

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