- Csaba Lentner
On the Renewal of Economic Thinking
Prior to the crisis that erupted in 2007-2008, there was a general consensus among the key economic policy theoreticians that financial regulation was not a macroeconomic instrument, and the mission of monetary policy called for the “single aim, single instrument”, while doubts regarding the efficiency of fiscal policy became an entrenched pattern. In this approach, predilection to market participants’ automaticity and the minimization of the state’s role in economy organisation, control and regulation constituted the generally accepted pattern, and central banks operated as “islands” in the world of government finances.
Thus the most important goal expected of monetary policy was the stabilisation of inflation, at a low level, possibly around 2 per cent. The reason for this was that back then the stabilisation of inflation was believed to also stabilise the output gap, and the closed output gap was thought to ensure optimum GDP growth, also accepted for welfare considerations.