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The Renewal of Monetary Policy

Michel Aglietta * Conseiller, CEPII et France Stratégie. Contact :

Inflation targeting was the only objective of monetary policy up to the financial crisis. Its rationale rests on a strong efficient market hypothesis that the systemic crisis has invalidated. Monetary policy must be overhauled to encompass financial stability under radical uncertainty, while money is endogenous and monetary policy has multiple objectives. Therefore it must use multiple instruments and allocate them to the objectives according to their relative performances. The responsibility for financial stability involves new macro prudential tools to manage financial vulnerabilities, some of which pertaining to monetary policy. Furthermore monetary and fiscal policies interact, which leads to reconsider the nature of central bank independence.

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