ECB
Monetary Policy
The role of European Central Bank
Table of Contents
The role of European Central Bank 1
Introduction 3
Goals of the ECB Monetary Policy 4
Stability of Prices 4
A quantitative approach on Price Stability 4
The definition of price stability 5
The benefits of price stability 6
The role of Strategic Monetary Policy of European Central Bank 9
The approach based on two pillars 10
The Monetary Analysis 10
Economic Analysis 11
Cross-checking information from the two pillars 12
The measures taken by the ECB to tackle crisis 12
Discussion 23
References 27
Introduction
Monetary policy is the process by which the monetary authority of an economic area, checks the quantity and the cost of money in the economy. The official goals of monetary policy are the control of inflation, the growth of the economy, the reduction of unemployment and the control of the exchange rate in relation to foreign currencies (Boivin et al., 2008). Monetary policy may be expansive, namely to increase the amount of money in the market by encouraging the economic development, but causing an increase in the inflation, or be limiting, i.e. to reduce the amount of money in the market, by keeping inflation low.
In Euro Zone, monetary policy is pursued by the European Central Bank
(ECB), which was created with the birth of the euro, when it took over the responsibility for the design and practice of monetary policy by the central banks of the Eurozone countries and operates as an independent, supranational but European organization.
The aim of the present paper is to present monetary policy of the ECB and record the changes in this policy caused by the recent economic crisis from 2007 onwards.
Goals of the ECB Monetary Policy
Stability of Prices
The primary goal of the Eurosystem and the Single Monetary Policy for which it is responsible, is price stability. This objective is institutionally guaranteed by Article 127 of the Treaty
The role of European Central Bank
Table of Contents
The role of European Central Bank 1
Introduction 3
Goals of the ECB Monetary Policy 4
Stability of Prices 4
A quantitative approach on Price Stability 4
The definition of price stability 5
The benefits of price stability 6
The role of Strategic Monetary Policy of European Central Bank 9
The approach based on two pillars 10
The Monetary Analysis 10
Economic Analysis 11
Cross-checking information from the two pillars 12
The measures taken by the ECB to tackle crisis 12
Discussion 23
References 27
Introduction
Monetary policy is the process by which the monetary authority of an economic area, checks the quantity and the cost of money in the economy. The official goals of monetary policy are the control of inflation, the growth of the economy, the reduction of unemployment and the control of the exchange rate in relation to foreign currencies (Boivin et al., 2008). Monetary policy may be expansive, namely to increase the amount of money in the market by encouraging the economic development, but causing an increase in the inflation, or be limiting, i.e. to reduce the amount of money in the market, by keeping inflation low.
In Euro Zone, monetary policy is pursued by the European Central Bank
(ECB), which was created with the birth of the euro, when it took over the responsibility for the design and practice of monetary policy by the central banks of the Eurozone countries and operates as an independent, supranational but European organization.
The aim of the present paper is to present monetary policy of the ECB and record the changes in this policy caused by the recent economic crisis from 2007 onwards.
Goals of the ECB Monetary Policy
Stability of Prices
The primary goal of the Eurosystem and the Single Monetary Policy for which it is responsible, is price stability. This objective is institutionally guaranteed by Article 127 of the Treaty
References: Alexakis, P. (2011) (in Greek). The innovations in monetary policy in Eurozone area from 2007 up today. The international crisis, the Eurozone crisis and the Greek financial system. Collective Volume, pp. 177-189, Athens : Greek Bank Union. Bank of Greece – Eurosystem (2014c) (in Greek). Instruments of Monetary Policy. Available from: <http://www.bankofgreece.gr/Pages/el/MonetaryPolicyEurosystem/means/default Bank of Greece – Eurosystem (2014d) (in Greek). Report of the Administrator for the year 2013. Athens: Bank of Greece. Boivin. J, Giannoni, M.P. & Mojon, B. (2008) How has the euro changed the monetary transmission? , National Bureau of Economic Research, Working Paper series, No Dougekos, T. (2008). The Independence and Supervision of European Central Bank: Theoretical and Empirical Investigation, PhD Thesis, Thessaloniki: University of Macedonia. ECB (2002) Monetary policy-making under uncertainty, Monthly Bulletin, January, pp ECB (2004) The Monetary Policy of the ECB, Frankfurt, Executive Board of the ECB. ECB (2013) The ECB’s monetary policy during the financial crisis, Monthly Bulletin, January, pp ECB (2014a) Objective of monetary policy, Available from: http://www.ecb.europa.eu/mopo/intro/objective/html/index.en.html, [Accessed 3 December 2014] Gerdesmeier, D. (2009) Price stability:Why is it important for you? Frankfurt: European Central Bank. Iordanides, I. (2012) (in Greek) The role of European Central Banks System in Ensuring Stability of the European Bank System, PhD Thesis, Athens: Panteion University. Scheller, H.K Trichet, J.C. (2009) The ECB’s Enhanced Credit Support, CESifo Working paper, No Zahariades – Souras, D. (2004) (in Greek). International Financial Institutions, 2nd ed., Athens : Stamoulis.