Alexandre Lamfalussy and the monetary policy debates among central bankers during the Great Inflation

Ivo Maes () and Piet Clement ()
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Ivo Maes: National Bank of Belgium and Robert Triffin Chair, Université catholique de Louvain and ICHEC Brussels Management School, Boulevard de Berlaimont 14, 1000 Brussels, Belgium
Piet Clement: Bank for International Settlements.

No 341, Working Paper Research from National Bank of Belgium

Abstract: The 1970s were a turbulent period in postwar monetary history. This paper focuses on how central bankers at the Bank for International Settlements (BIS), especially Alexandre Lamfalussy, the BIS’s Economic Adviser, responded to the Great Inflation. The breakdown of Bretton Woods forced central bankers to look for new monetary policy strategies as the exchange rate lost its central role. Lamfalussy, in his early years a Keynesian in favour of discretionary policies, moved to a "conservative Keynesian" position, acknowledging that a medium term orientation and the credibility of monetary policy were important to break inflationary expectations. However, Lamfalussy never moved to “monetarist” positions. Lamfalussy certainly acknowledged that monetary targets could reinforce the credibility and independence of monetary policy. However, he rejected mechanical rules. In essence he aimed for a middle position: rules applied with a pragmatic sense of discretion. In the early 1980s, with the rise of financial innovations, Lamfalussy would stress even more the limitations of monetary targeting. His focus turned increasingly to systemic financial stability risks, preparing the ground for the macroprudential approach of the BIS. In Lamfalussy's view, central banking remained an art, not a science.

Keywords: Great Inflation; monetary policy; central banking; Alexandre Lamfalussy; BIS (search for similar items in EconPapers)
JEL-codes: B22 E58 F44 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2018-04
New Economics Papers: this item is included in nep-cba, nep-his, nep-hpe, nep-mac, nep-mon and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:201804-341

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