This article reviews and assesses the theoretical propositions and empirical evidence regarding the link between monetary policy and economic growth. Two general conclusions emerge. First, monetary policy cannot be expected to contribute to raising economic growth in the long run. Second, while monetary policy can play, under particular circumstances, an output-stabilising role, an activist, finetuning counter-cyclical monetary policy involves more risks than potential benefits. The mandate and strategy of the European Central Bank reflect these insights: a strong commitment to price stability combined with flexibility in the implementation of policy which allows for some "constrained discretion" in dealing with severe cyclical output fluctuations consistently with the preservation of price stability. The main policy instruments to increase the growth potential of the euro area economy are structural reforms to improve productivity and market flexibility.
