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23 February 2011

Jürgen Stark: Central banking after the financial crisis


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Stark highlighted that central banks and governments played a key role in containing the impact of the crisis by preventing a global economic and financial meltdown.


Concluding remark:
 
• Monetary policy should be focused on the goal of maintaining price stability over the medium term, and central banks should be independent of governments in order to ensure an effective and credible pursuit of this goal. These principles are firmly enshrined in monetary policy frameworks of essentially all advanced economies and I see them strongly confirmed by the experiences of the crisis.
 
• At the same time, however, the crisis has revealed short-comings of the pre-crisis global monetary order. Insufficient medium-term orientation in the monetary policy frameworks led to too loose a monetary policy stance in many advanced economies, and contributed in my view importantly to exacerbating pre-crisis financial excesses. Strengthening the medium-term orientation of monetary policy frameworks also requires a commensurate leaning-against-the-wind attitude in face of financial cycles which can be achieved by giving money and credit aggregates a due place in the monetary policy strategy.
 
• These insights need to be taken into account in the current considerations on the phasing-out of non-standard measures. The risk of creating renewed financial imbalances and serious financial distortions by maintaining too loose a monetary stance for too long is considerable.
 
• Finally, the fundamental achievement to establish credible price-stability-orientated monetary policy frameworks must not be put at risk. Central banks need to avoid the spreading of any doubt of their commitment to maintain price stability and their independence from political influence. In this respect, it is important to refrain from any kind of monetary financing. It is ultimately up to fiscal authorities to address the root causes of the current problems and take measures to credibly ensure fiscal sustainability.

Full speech



© Jürgen Stark


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