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Lessons for monetary policy: What should the consensus be?

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  • Issing, Otmar

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

  • Issing, Otmar, 2011. "Lessons for monetary policy: What should the consensus be?," CFS Working Paper Series 2011/13, Center for Financial Studies (CFS).
  • Handle: RePEc:zbw:cfswop:201113
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    File URL: https://www.econstor.eu/bitstream/10419/57360/1/661566269.pdf
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    References listed on IDEAS

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    1. Issing,Otmar, 2008. "The Birth of the Euro," Cambridge Books, Cambridge University Press, number 9780521731867, May.
    2. Michael Scharnagl & Christina Gerberding & Franz Seitz, 2010. "Should Monetary Policy Respond to Money Growth? New Results for the Euro Area," International Finance, Wiley Blackwell, vol. 13(3), pages 409-441, Winter.
    3. Borio, Claudio & Zhu, Haibin, 2012. "Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism?," Journal of Financial Stability, Elsevier, vol. 8(4), pages 236-251.
    4. Rüffer, Rasmus & Stracca, Livio, 2006. "What is global excess liquidity, and does it matter?," Working Paper Series 696, European Central Bank.
    5. Stephan Fahr & Roberto Motto & Massimo Rostagno & Frank Smets & Oreste Tristani, 2013. "A monetary policy strategy in good and bad times: lessons from the recent past," Economic Policy, CEPR;CES;MSH, vol. 28(74), pages 243-288, April.
    6. Beck, Guenter W. & Wieland, Volker, 2008. "Central bank misperceptions and the role of money in interest-rate rules," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages 1-17, October.
    7. Lars E O Svensson, 2005. "Monetary Policy with Judgment: Forecast Targeting," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    8. Issing,Otmar & Gaspar,Vitor & Angeloni,Ignazio & Tristani,Oreste, 2001. "Monetary Policy in the Euro Area," Cambridge Books, Cambridge University Press, number 9780521783248, May.
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    11. Charles Goodhart, 2010. "The changing role of central banks," BIS Working Papers 326, Bank for International Settlements.
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    13. Vasco Curdia & Michael Woodford, 2010. "Credit Spreads and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 3-35, September.
    14. Alan S. Blinder, 2010. "How Central Should the Central Bank Be?," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 123-133, March.
    15. Otmar Issing, 2009. "Asset Prices and Monetary Policy," Cato Journal, Cato Journal, Cato Institute, vol. 29(1), pages 45-51, Winter.
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    20. Charles Goodhart, 2010. "The Changing Role of Central Banks," FMG Special Papers sp197, Financial Markets Group.
    21. repec:pri:cepsud:198blinder is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    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. Arto Kovanen, 2011. "Does Money Matter for Inflation in Ghana?," IMF Working Papers 11/274, International Monetary Fund.
    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.

    More about this item

    Keywords

    Inflation Targeting; Asset Prices; Financial Stability; ECB;

    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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