Monday, October 26, 2009

Two mandates for the ECB? (amv)

Should the ECB take over responsibility for both, price stability and financial stability? Very insightful comments by Jean-Pisani Ferry:

The increased weight of the financial stability objective alongside the price stability objective is suddenly making things complex again. Instead of the one-instrument, one-objective framework they were converging on, central banks will have to pursue two objectives with one instrument, which is bound to bring back the very trade-offs they had succeeded of getting rid of. Having to choose between two objectives also makes accountability more difficult, because you need to explain why precedence has been given to one of the goals at the expense of the other one. There will be no shortage of Jesuitical arguments to explain that financial stability is nothing else than price stability envisaged over a little longer horizon, but facts are likely to prove stubborn things.