Stability First: Reflections Inspired by Otmar Issing's Success as the ECB's Chief Economist

In this paper, we review Otmar Issing's career as the ECB's inaugural chief economist and we document many notable successes. We try to infer some general principles that contributed to these successes and draw some lessons. In doing so, we review the evidence using Woodford's (2003) recent revival of the Wicksellian approach to monetary policy making. Suitably interpreted the baseline model can rationalize Issing's three guiding principles for successful policymaking. This baseline model, however, fails to account for the important role that monetary and financial analysis played in the conduct of policy during Issing's tenure. We propose an extension of the model to account for financial developments and show that this extended model substantially improves our understanding of ECB practice. We conclude by listing six open questions, relevant for the future of central banking in Europe that Issing may want to consider in case leisure allows.