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Central Banks - Paradise Lost


  • Otmar Issing

    (President, Center for Financial Studies, Goethe University Frankfurt (E-mail:


The focus of the paper is to analyze how the concept behind central bank policy developed over time and how the recent financial crisis and its consequences will have an influence. While the principles of the institutional arrangement for central banks (independence, clear mandate, prohibition of monetary financing) are relevant as ever, pre- crisis consensus strategies of monetary policy have been revealed as flawed. The close monitoring of money and credit developments, a key lesson to be drawn from the crisis, however, does not imply the extension of the central bank fs mandate to financial stability. As much as central banks should demonstrate modesty in what they deliver, equally their reputation should not be challenged further by other tasks imposed upon them.

Suggested Citation

  • Otmar Issing, 2012. "Central Banks - Paradise Lost," IMES Discussion Paper Series 12-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:12-e-010

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    References listed on IDEAS

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    Cited by:

    1. Thomas F. Cargill & Gerald P. O'Driscoll Jr., 2013. "Federal Reserve Independence: Reality or Myth?," Cato Journal, Cato Journal, Cato Institute, vol. 33(3), pages 417-435, Fall.
    2. Aleksandra Halka, 2015. "Lessons from the crisis.Did central banks do their homework?," NBP Working Papers 224, Narodowy Bank Polski, Economic Research Department.
    3. Cukierman, Alex, 2017. "Money growth and inflation: Policy lessons from a comparison of the US since 2008 with hyperinflation Germany in the 1920s," Economics Letters, Elsevier, vol. 154(C), pages 109-112.

    More about this item


    Central banking; Financial stability; Monetary policy;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies


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