The ECB's Curious Money Fixation: The Latest on Europe's Campaign to Cement Monetary Growth to Monetary Policy

Munchau, Wolfgang, The International Economy

Possibly the most important development in the European macroeconomic policy debate over the last year has been the return of a subject of polite conversion among economists. We are not talking about a return to 1970s-style monetarism, although a minority of participants in this debate do. This is a debate about whether central banks have gone too far in downplaying the significance of monetary aggregates in practical monetary policy making.

Larry Meyer, a former member of the Board of Governors of the Federal Reserve, famously said that "money plays no role in today's consensus macro model, and it plays virtually no role in the conduct of monetary policy, at least in the United States." Money, however, does play a much more central role at the European Central Bank, and it appears that its role has recently been getting stronger, contrary to what had been predicted when the ECB started up in 1999.

The issue came up during a research conference organized by the ECB in Frankfurt in November 2006. The ECB invited Professor Michael Woodford from Columbia University, who made a strong case for the superiority of the New Keynesian models, in which money has no separate role. It is not clear why the ECB held this conference in the first place. It is possible that this was merely an honest and open invitation to the academic community …

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Publication information: Article title: The ECB's Curious Money Fixation: The Latest on Europe's Campaign to Cement Monetary Growth to Monetary Policy. Contributors: Munchau, Wolfgang - Author. Magazine title: The International Economy. Volume: 21. Issue: 1 Publication date: Winter 2007. Page number: 46+. © 2009 International Economy Publications, Inc. COPYRIGHT 2007 Gale Group.

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