Author (Person) | de Grauwe, Paul, Gros, Daniel |
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Series Title | CESifo Working Papers |
Series Details | No. 2818, October 2009 |
Publication Date | 2009 |
Content Type | Journal | Series | Blog |
The ECB has been arguing in the past that since there is no trade-off between price stability and financial stability, the pursuit of price stability is the best a central bank can do to also maintain financial stability. We argue that there is a potential trade-off between price stability and financial stability. In order to make this trade-off less constraining we propose that the two-pillar strategy of the ECB should be reformed. In this new two-pillar strategy, the ECB should pursue two objectives, i.e. price stability and financial stability. In this new strategy the interest rate should be used to achieve the inflation objective, while other instruments (minimum reserve requirements and macro prudential control) should be used to achieve financial stability. |
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Source Link | http://www.cesifo-group.de/portal/pls/portal/docs/1/1185974.PDF |
Countries / Regions | Europe |
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