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Europe, Time to Wake Up!

Change of monetary policy instruments — reduction of public debt (interest burdens), system of fiscal and monetary objectives — central bank independence

Tamás Bánfi
University Professor, Head of Department, Corvinus University of Budapest, Department of Finance

Attila Bánfi
Head of Treasury and Investment Banking Division, Intesa Sanpaolo Group, Pravex Bank, Kiev

Zoltán Bánfi
PhD student, Kaposvár University, PhD School of Financial Management and Organisational Studies

Published in: Public Finance Quarterly 2013/2 (p. 219-229.)


Summary: The economic crisis arising in 2008 has severely limited the options of economic policy in Hungary. The absence of fiscal expansion, and deficiencies in the coordination of fiscal and monetary policy have had a negative impact on the effectiveness of measures in economic policy to boost economic growth. This paper highlights the drawbacks and contradictions inherent in the goals, instruments and principles of monetary policy which are regarded as axioms today. Our conclusions suggest that (1) the central bank’s participation in the secondary market of government securities could be a viable way to reduce the interest burden on public debt; (2) the system of inflation targeting is not suitable for Hungary (an exchange rate channel would be more efficient); and (3) the central bank’s independence is only justified with the appropriate degree of accountability.

Keywords: central bank, monetary policy, inflation targeting, central bank independence, open-market operation

Journal of Economic Literature (JEL) kód: E02, E42, E43, E52, E61, G18, G21, G28, H39, H63, O23


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