Money in monetary policy design under uncertainty: a formal characterization of ECB-style cross-checking

  • The European Central Bank has assigned a special role to money in its two pillar strategy and has received much criticism for this decision. The case against including money in the central bank’s interest rate rule is based on a standard model of the monetary transmission process that underlies many contributions to research on monetary policy in the last two decades. In this paper, we develop a justification for including money in the interest rate rule by allowing for imperfect knowledge regarding unobservables such as potential output and equilibrium interest rates. We formulate a novel characterization of ECB-style monetary cross-checking and show that it can generate substantial stabilization benefits in the event of persistent policy misperceptions regarding potential output. JEL Classification: E32, E41, E43, E52, E58

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Metadaten
Author:Günter W. Beck, Volker WielandORCiDGND
URN:urn:nbn:de:hebis:30-43991
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2007,18
Series (Serial Number):CFS working paper series (2007, 18)
Document Type:Working Paper
Language:English
Year of Completion:2007
Year of first Publication:2007
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2007/04/30
Tag:European Central Bank; Phillips Curve; monetary policy; money; policy under uncertainty; quantity theory
GND Keyword:Europäische Zentralbank; Geldpolitik
Issue:Version: September 15, 2006
Page Number:13
Note:
1st version: August 26, 2006 ; This version: September 15, 2006
HeBIS-PPN:187516642
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht