BASED on the history of central banking which is a story of
learning how to provide a credible nominal anchor and to act as
a lender of last resort, my recommendation is to stick to the
tried and true—to provide a credible nominal anchor to the
monetary system by following rules for price stability. Also
central banks should stay independent of the fiscal authorities.
The recent crisis has weakened central bank independence and
returning to the pre-crisis regime as soon as possible would be
desirable. If the central bank is successful in maintaining a
stable and credible nominal anchor then real macro stability
should obtain. But in the face of real shocks central banks also
need to follow short-run stabilisation policies consistent with
long-run price stability. The flexible inflation-targeting
approach followed by the Riksbank and the Norges Bank seems to
be a good model that other central banks like the Federal
Reserve, should follow. The central bank should also serve as as
a lender of last resort to the