Reconsidering the role of money in monetary policy
Euro policy architect Otmar Issing argues that central banks must improve their flawed inflation targeting frameworks
Inflation targeting (IT) remains the ‘state-of-the-art’ approach to monetary policy adopted by most of the world’s central banks. However, given fundamental flaws in IT’s concept and its failures in practice, this dominance is hard to understand.1
Using interest rates to control inflation is akin to adopting ‘monetary policy without money’. But IT’s problems run much deeper: no convincing model of IT exists, so far, that integrates the risks from the banking system and financial markets with all
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