Conclusion One lesson the history of central banking is teaching us, applicable to the precrisis years of the “great moderation” as well as to the Great Recession, is that monetary policy works better when it follows a well-defined strategy, since the economy feeds on both its current and its expected future stance.
To attenuate time inconsistency, central banks need to be independent but at the same time accountable and transparent. These two requisites are mutually self-reinforcing: a well-defined strategy implies greater transparency and accountability, and viceversa. The Outright Monetary Transactions announced by the ECB Governing Council last September are an excellent case in point.