Commentary: Monetary Policy and the Control of Inflation

Governor Crow touched on most of the major issues one wants to raise, leaving his discussants with little to question. I can only echo his comments about the goal of price stability and the critical importance of firmly setting monetary policy on a noninflationary path and keeping it there. Like Governor Crow, I do not believe this objective has much chance of being achieved unless there is some formal understanding that frees the central bank from financing government budget deficits. I would go further. Monetary policy cannot deliver stable prices in Eastern Europe unless there are fiscal and other reforms; the commitment to price stability will be meaningless if most prices remain controlled. These fiscal and price reforms are only part of the economic reform necessary to make monetary policy work effectively.