Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97783
Authors: 
Orphanides, Athanasios
Year of Publication: 
2013
Series/Report no.: 
IMFS Working Paper Series 75
Abstract: 
Following the experience of the global financial crisis, central banks have been asked to undertake unprecedented responsibilities. Governments and the public appear to have high expectations that monetary policy can provide solutions to problems that do not necessarily fit in the realm of traditional monetary policy. This paper examines three broad public policy goals that may overburden monetary policy: full employment; fiscal sustainability; and financial stability. While central banks have a crucial position in public policy, the appropriate policy mix also involves other institutions, and overreliance on monetary policy to achieve these goals is bound to disappoint. Central Bank policies that facilitate postponement of needed policy actions by governments may also have longer-term adverse consequences that could outweigh more immediate benefits. Overburdening monetary policy may eventually diminish and compromise the independence and credibility of the central bank, thereby reducing its effectiveness to preserve price stability and contribute to crisis management.
Subjects: 
Global financial crisis
monetary policy real-time output gap
fiscal dominance
financial stability
central bank independence
JEL: 
E50
E52
E58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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