Conference on “The crisis in the euro area”, May 23-24, 2013
Author: C.Α.Ε. Goodhart
Discussion: Gikas Α. Hardouvelis
Publication: BANK OF GREECE, Economic Research Department – Special Studies Division, Special Conference Paper, July 2013
The international crisis of 2007-2009 and the subsequent Euro Area crisis, which is still with us in mid-2013, have caused a lot of soul searching among macro and monetary economists. Many dogmatic beliefs of the way monetary policy operates and relates to inflation and financial stability were shattered by the economic consequences of the multiple crises. The lessons for monetary policy are, indeed, many and are nicely summarized by Charles Goodhart in his paper, “Lessons for Monetary Policy from the Euro Area Crisis.” Goodhart (2013) draws on his theoretical and practical experience with monetary policy over the last four or five decades to claim that most of the lessons to be learned originate from the earlier international crisis, and not so much from the on-going Euro Area crisis. In his view, the new lesson from the Euro Area crisis is the need for a banking union in a single-currency area. Thus before I discuss the main topic of monetary policy in the Euro Area and the current problematic fragmentation of its transmission mechanism, I will briefly review his summary of the lessons learned from the international crisis.