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Central Banking in the Crisis: Conceptual Convergence and Open Questions on Unconventional Monetary Policy

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Abstract

The advanced economies — financial crisis that began in 2007 was triggered by factors that could not have been easily foreseen but also by factors that had been familiar since the Great Depression but were ignored or forgotten. However, once the crisis was apparent, central banks of the major advanced economies — the European Central Bank, the U.S. Federal Reserve System, the Bank of England, and the Bank of Japan reacted quickly and with a remarkable convergence of policy with respect to defining price stability, communication, enhanced banking surveillance, the role of money and monetary aggregates, unconventional liquidity supply, and forward guidance. These elements of convergence are discussed with respect to their strength and possible dangers in stabilizing the global financial system.

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Notes

  1. The BOJ statement reads: “The Bank will achieve the price stability target of 2 percent... at the earliest possible time, with a time horizon of about two years.” The Federal Open Market Committee “Statement on Longer-Run Goals and Policy Strategy” published in January 2012 reads: “The inflation rate over the longer run is primarily determined by monetary policy and hence the Committee has the ability to specify a longer run goal for inflation. The Committee judges that inflation at the rate of 2 percent … is most consistent over the longer run with the Federal Reserve’s statutory mandate.”

  2. As Milton Friedman [2000] said: “It’s very simple. They can buy long-term government securities, and they can keep buying them and providing high-powered money until the high-powered money starts getting the economy in an expansion.”

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Address on the occasion of receiving the NABE Lifetime Achievement Award for Economic Policy at the NABE Economic Policy Conference, February 24, 2014.

*Jean-Claude Trichet was the president of the European Central Bank (ECB) from 2003 to 2011. He is also a member of the Board of Directors of the Bank for International Settlements. In 1987, he became a member the Group of Thirty. In 1993 he was appointed governor of Banque de France, where he served until becoming president of the ECB. Previously, Trichet was in charge of the French Treasury for six years. Earlier in his career, he held positions within the French Inspection Generale des Finances as well as the Treasury department and was advisor of the President of the Republic. In 2012, he joined the board of the European Aeronautic Defence and Space Company. Trichet graduated from the Ecole des Mines de Nancy, the Institut d’ Etudes Politiques de Paris, and the Universite’ de Paris in economics. He is a doctor honoris causa from several universities and an alumnus of the Ecole Nationale d’ Administration.

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Trichet, JC. Central Banking in the Crisis: Conceptual Convergence and Open Questions on Unconventional Monetary Policy. Bus Econ 49, 74–84 (2014). https://doi.org/10.1057/be.2014.11

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