Otmar Issing describes how the reputation of central banks evolved over time (with the relief from administrative measures, the acknowledgement of the rational expectations theory and the focus on a clear, single mandate of price stability being milestones). He reviews the concept of Inflation Targeting and the considerable flaws that characterize the Jackson Hole consensus. The crisis and its consequences have influenced central banking. Among the lessons to be drawn from the experience is that close monitoring of money and credit developments is imperative. The extension of the central banks' mandate to financial stability cannot, however, be derived (as other, even more important tools – such as regulation and supervision – lie beyond the monetary policy sphere). The author stresses the point of not challenging central banks’ reputation even further by imposing tasks upon them for which they have no competence.
White Paper No. 08, 2012