Lessons for Monetary Policy: What Should the Consensus Be?

19 Pages Posted: 2 May 2011

See all articles by Otmar Issing

Otmar Issing

Center for Financial Studies (CFS)

Date Written: April 2011


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.

Keywords: Asset prices, Central banks, Credit, European Central Bank, Financial stability, Inflation targeting, Monetary aggregates, Monetary policy, Money

Suggested Citation

Issing, Otmar, Lessons for Monetary Policy: What Should the Consensus Be? (April 2011). IMF Working Paper No. 11/97, Available at SSRN: https://ssrn.com/abstract=1826550

Otmar Issing (Contact Author)

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323

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