Monetary Policy in the Euro Area: Strategy and Decision-Making at the European Central BankHow and for whose benefit the European Central Bank (ECB) will work is the most important issue facing Europe, and has been the subject of vast media and academic interest which has already spawned a vast literature of discussion papers in the academic literature, and 'Euro Watch' features. Much of this discussion has been of an increasingly hysterical and political nature and has served to blur rather than inform. This book, written by a team at the ECB, including Otmar Issing the ECB's Chief Economist, provides the first comprehensive, inside, non-technical analysis of the monetary policy strategy, institutional features and operational procedures of the Eurosystem. The goals and the transmission mechanism of monetary policy are explored, as are the theoretical and empirical results underpinning the 'stability-oriented monetary policy strategy' adopted by the ECB. The characteristics of this strategy are also discussed in comparison with suggested alternatives. |
Contents
Money output and prices the scope of monetary policy | 7 |
11 The long run | 8 |
12 The short run | 18 |
Monetary policy making strategies and rules | 32 |
the importance of credibility | 33 |
22 Optimal policy | 39 |
23 Simple rules as policy benchmarks | 41 |
24 Monetary policy strategies | 45 |
72 Euro areaspecific aspects | 101 |
73 A new strategy | 103 |
74 Two pillars a single framework | 106 |
75 Recent criticisms and some answers | 108 |
The operational framework | 112 |
81 Outline of the Eurosystems operational framework | 114 |
82 How does the framework fulfil its main goals? | 119 |
83 Counterparties and eligible collateral | 120 |
The euro area an overview | 47 |
32 Euro area data | 51 |
33 Some tentative evidence on the monetary transmission mechanism in the euro area | 58 |
The ECB strategy defining price stability | 65 |
42 The ECBs definition of price stability | 68 |
43 Other aspects of the definition of price stability | 71 |
The role of money | 76 |
52 Two implications for the ECB strategy | 79 |
money in the ECB strategy | 82 |
54 Money demand models for the euro area | 86 |
A broadly based assessment | 90 |
61 Leading indicators | 91 |
62 Expectations and forecasts | 94 |
The ECB strategy an overall view | 98 |
general aspects | 99 |
84 The performance of the operational framework in 1999 | 121 |
Accountability and transparency | 128 |
91 Accountability and independence | 129 |
92 Transparency | 134 |
93 Accountability and transparency of the ECB | 138 |
The single monetary policy in 1999 | 144 |
101 The announcement of the strategy | 145 |
3 December 1998 and 22 December 1998 | 148 |
8 April 1999 | 150 |
4 November 1999 | 159 |
Excerpts from ECB external communications to the press | 165 |
| 179 | |
| 195 | |
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Common terms and phrases
analysis announcement area-wide assumptions basis points behaviour business cycle cent central bank changes chapter characterised Consumer Prices core inflation countries credibility definition of price deviations ECB strategy ECB's econometric economic effects emphasised empirical EONIA euro area European European Central Bank Eurosystem's exchange rate financial markets future goal Governing Council HICP increase indicators inflation forecast inflation rate inflationary issue literature long run macroeconomic main refinancing operations medium term monetary aggregates monetary developments monetary growth monetary policy strategy monetary targeting money and prices money demand money market moneyness nominal nominal interest rates open market operations operational framework optimal output gap price developments price level price stability real GDP reference value relationship risks to price role rule sector short run short term signal single monetary policy specific Stage Three structural Taylor rule term interest rates theoretical tion transmission mechanism transparency trend uncertainty variables