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Alternative Monetary Policy and Central Banking

Georgios Argitis

Working papers from Financialisation, Economy, Society & Sustainable Development (FESSUD) Project

Abstract: This paper points out policy suggestions for modern central banks to improve their effectiveness in terms of successfully targeting financial stability and employment. The theoretical foundations of the proposed policy suggestions rely on Minsky’s conceptualization of financial fragility and instability. It is argued that Minsky’s Financial Instability Hypothesis contextualizes how the financial structure of the effective demand and financial markets predispose to endogenous non-sustainable leverage and liability structures that result from position-making operations. We stress that Minsky advances an approach to central banking that is based on a cash-flow examination procedure to capture changes in the quality of leverage, solvency and liquidity of firms and banks that destabilize the macroeconomic system. We underline that Minsky patterns central banking and monetary policy within Ponzi financial practices and interconnections among financial institutions and financial markets. Following Minsky, we suggest discount window central banking, lender of last resort operations and targeting Ponzi finance as the most appropriate policies of modern central banks to deal with financial and macroeconomic instability.

Keywords: Financial Fragility and Instability; Central Banking; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E12 E52 E58 G18 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-01-01
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pke
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