Chapter 9: Round Table Discussion: Monetary Policy in the New International Environment
Patrick Artus, Alan S. Blinder, Willem Buiter, Otmar Issing and Robert M. Solow INTRODUCTION The round table discussion brought together four speakers, Patrick Artus, Alan Blinder, Willem Buiter and Otmar Issing, under the chairmanship of Robert Solow, and covered a variety of topics to do with central banking. Rather than present a direct transcription, we have grouped together the diﬀerent speakers’ contributions into four broad themes, starting with the objectives of central banks and the tools at their disposal, moving on to explore the implications and eﬀects of globalization on monetary policy and the problem of communication and transparency, and ending with the question of independence and accountability. CENTRAL BANK OBJECTIVES AND TOOLS Willem Buiter (London School of Economics) Economic ﬁrst principles do not get us very far: the New Keynesian school, for example, tried to derive price stability as an objective – or even the overriding objective – of the central bank from ﬁrst principles, but failed. All that can be obtained from ﬁrst principles is a complex combination of three pillars: ● ● ● the Bailey–Friedman optimal quantity of money (OQM) rule (which is actually not an OQM rule, but only an interest rate rule) – setting the opportunity cost of holding central bank money equal to zero; the accommodation of ‘core inﬂation’ – avoiding relative price distortions between constrained and unconstrained price setters; the minimization of the deviation of output from the eﬃcient level (not necessarily from capacity level, that is to say, not the output gap). 177 178...
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