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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFS Working Paper ; No. 2007/18

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Demand for Money ; Interest Rates: Determination, Term Structure, and Effects ; Monetary Policy ; Central Banks and Their Policies
• Subject: Monetary Policy ; Money ; Quantity Theory ; Phillips Curve ; European Central Bank ; Policy Under Uncertainty ; Geldpolitik ; Entscheidung bei Unsicherheit ; Quantitätstheorie ; Phillips-Kurve ; Zentralbank ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Beck, Günter W. ; Wieland, Volker
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (where): Frankfurt a. M.
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/25519
• URN: urn:nbn:de:hebis:30-43991
• Last update: 10.03.2025, 11:43 AM CET