Stability First: Reflections Inspired by Otmar Issing's Success as the Ecb's Chief Economist

37 Pages Posted: 20 Jul 2006 Last revised: 20 Jul 2010

See all articles by Vitor Gaspar

Vitor Gaspar

European Commission

Anil K. Kashyap

University of Chicago, Booth School of Business; National Bureau of Economic Research (NBER); Federal Reserve Bank of Chicago

Date Written: June 2006

Abstract

In this paper, we review Otmar Issing's career as the ECB's inaugural chief economist and we document many notable successes. We try to infer some general principles that contributed to these successes and draw some lessons. In doing so, we review the evidence using Woodford%u2019s (2003) recent revival of the Wicksellian approach to monetary policy making. Suitably interpreted the baseline model can rationalize Issing%u2019s three guiding principles for successful policymaking. This baseline model, however, fails to account for the important role that monetary and financial analysis played in the conduct of policy during Issing%u2019s tenure. We propose an extension of the model to account for financial developments and show that this extended model substantially improves our understanding of ECB practice. We conclude by listing six open questions, relevant for the future of central banking in Europe that Issing may want to consider in case leisure allows.

Suggested Citation

Gaspar, Vitor and Kashyap, Anil K., Stability First: Reflections Inspired by Otmar Issing's Success as the Ecb's Chief Economist (June 2006). NBER Working Paper No. w12277, Available at SSRN: https://ssrn.com/abstract=906755

Vitor Gaspar

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Anil K. Kashyap (Contact Author)

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