Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25519
Authors: 
Beck, Günter W.
Wieland, Volker
Year of Publication: 
2006
Series/Report no.: 
CFS Working Paper 2007/18
Abstract: 
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.
Subjects: 
Monetary Policy
Money
Quantity Theory
Phillips Curve
European Central Bank
Policy Under Uncertainty
JEL: 
E32
E41
E43
E52
E58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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