The ECB Strategy and Its Critics

2021 ◽  
pp. 58-100
Author(s):  
Massimo Rostagno ◽  
Carlo Altavilla ◽  
Giacomo Carboni ◽  
Wolfgang Lemke ◽  
Roberto Motto ◽  
...  
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Primary Objective ◽  
Price Stability ◽  
Governing Council ◽  
Policy Strategy ◽  
European Central ◽  
The Eu

While the EU Treaty established the European Central Bank’s (ECB) primary objective as price stability, defining price stability was left to the ECB’s Governing Council (GC). This chapter shows how the GC chose to formulate an objective that subtly but consciously differed from the standard inflation targeting framework of the time. Rather than expressing a preference for a particular rate of inflation, a ‘target’ that could be changed if circumstances changed, it opted to qualify price stability unconditionally as an inflation rate below 2%. We explain some of the factors behind this decision and describe the process whereby, already in 2003, the ECB’s monetary policy strategy came to be reviewed. The internal debates that informed the ECB’s characteristic ‘below but close to 2%’ objective and ‘two pillar’ strategy are discussed. The chapter also focuses on the ECB’s early critics.

scholarly journals Albania's Monetary Policy and the Basic Indicators that Effect the Economic Growth

2019 ◽  
Vol 2 (2) ◽  
pp. 51
Author(s):  
Bernard Balla
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Full Employment ◽  
Price Stability ◽  
Macroeconomic Policies ◽  
Consumer Prices

Macroeconomic policies aim to stabilize the economy by achieving their goal of price stability, full employment and economic growth. Price stability is the responsibility of macroeconomic policies that are developed to maintain a low inflation rate, contribute to the solidity of the domestic product and maintain an exchange rate that can be predictable. The purpose of this paper is to analyze Albania's monetary policy by highlighting the main indicators that can be used as a measurement of the efficiency of this policy in the economic development. The literature review shows that there are many attitudes regarding the factors that need to be taken into consideration when analyzing monetary policies, including the elements of fiscal policies. In the Albanian economy, the prices and the level of inflation are the most important aspects. The Bank of Albania uses the inflation targeting regime, considering that the main indicator of inflationary pressures in the economy is the deviation of inflation forecasted in the medium term by its target level. In numerical terms, the bank intends to maintain its annual growth in consumer prices at the level of 3%. According to the latest reports published by the Bank of Albania in 2019, monetary policy continues to contribute positively to a financial environment with a low interest rate and an annual inflation rate of 2%. Although the inflation rate hit the lowest value of 1.8 % in 2018, a balanced rate was achieved through the reduction of interest rates and risk premiums in financial markets and, more recently, through the tightening of the exchange rate. These monetary conditions are appropriate to support the growth of domestic demand and the strengthening of inflationary pressures.

Section 6 The European Central Bank

2019 ◽  
Author(s):  
Marcus Klamert ◽  
Manuel Kellerbauer ◽  
Jonathan Tomkin
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
European Central Bank ◽  
Primary Objective ◽  
Price Stability ◽  
European Central

Article 282 provides for the ESCB, consisting of the ECB together with the NCBs (NCBs). Within the ESCB, the Eurosystem, comprised of the ECB and the NCBs of MS whose currency is the euro, conducts the Union’s monetary policy. The primary objective of the ESCB is to maintain price stability. The ECB is charged with authorizing the use of the euro and is independent in all respects.

scholarly journals Adopting Inflation Targeting in Pakistan: An Empirical Analysis

2010 ◽  
Vol 15 (2) ◽  
pp. 51-76 ◽  
Author(s):  
Nadia Saleem
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Policy Option ◽  
Price Stability ◽  
Potential Candidate ◽  
Long Run ◽  
The Interest Rate ◽  
Nominal Anchor

The objective of this paper is to assess the conditions for inflation targeting in Pakistan. The recent inflationary surge in Pakistan calls for rethinking monetary policy afresh. This paper argues the case for inflation targeting in Pakistan as a policy option to achieve price stability. The country experienced an inflation rate of just below 10 percent during 1970-2009, which makes it a potential candidate for inflation targeting. Applying the VAR technique to data for the same period, inflation is shown to be adaptive in nature, leading us to reject the accelerationist hypothesis. The Lucas critique holds as people are found to use forward-looking models in forming expectations about inflation. The paper also sheds some light on the State Bank of Pakistan’s level of preparedness for the possibility of adopting inflation targeting, for which transparency and autonomy are prerequisites. The interest rate channel can play the role of a nominal anchor in the long run.

scholarly journals The price stability oriented monetary policy of the European Central Bank

2010 ◽  
Vol 13 (3) ◽  
pp. 5-15
Author(s):  
Wojciech Gasiński ◽  
Anna Misztal
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
European Central Bank ◽  
Central Banks ◽  
Primary Objective ◽  
Price Stability ◽  
Economic Policies ◽  
European Central ◽  
Consumer Prices ◽  
European System

The aim of this paper is to present the price stability oriented monetary policy of the European Central Bank. The European Central Bank began activities in 1998 and the primary objective of the European System of Central Banks is to maintain price stability and the ESCB should also support the general economic policies in the Community. Monetary policy is a special tool that national governments and central banks uses to influence on its economy, especially to control the supply of money and to influence on the level of economic indicators. This paper investigates the assumed objective of the European System of Central Banks which is to maintain price stability. What is more, we would like to present the monetary policy strategy of the European Central Bank and analysis of the Harmonized Index of Consumer Prices.

scholarly journals THE OPTIMAL MONETARY POLICY INSTRUMENTS: THE CASE OF INDONESIA

2003 ◽  
Vol 5 (3) ◽  
pp. 56-70
Author(s):  
Yoga Affandi
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Rate ◽  
Policy Instruments ◽  
Primary Objective ◽  
Price Stability ◽  
Optimal Monetary Policy ◽  
Monetary Target

In 1999, the central bank of Indonesia, Bank Indonesia, gained its independence. The new Central Bank Act has established a more explicit foundation for Bank Indonesia’s independence. Firstly, goal independence, in which Bank Indonesia sets its own monetary target. Secondly, instrument independence, in which Bank Indonesia implements various policy instruments to achieve that target. The primary objective of Bank Indonesia (henceforth BI) is to achieve and maintain price stability reflected in a low and stable inflation rate.

scholarly journals Money supply growth and inflation – the monetary policy strategy of the European Central Bank

2007 ◽  
Vol 55 (3) ◽  
pp. 57-66
Author(s):  
Svatopluk Kapounek ◽  
Lubor Lacina
Keyword(s):  
Time Series ◽  
Monetary Policy ◽  
Central Bank ◽  
Money Supply ◽  
European Central Bank ◽  
Price Stability ◽  
Policy Strategy ◽  
European Central ◽  
Definition Of ◽  
Quantitative Definition

The main aim of this article is to find out whether there is a significant relationship between money supply growth and inflation in the Eurozone. For this reason, the monetary policy strategy of the European Central Bank (ECB) has been evaluated. Since the establishment of the ECB in January 1999 to May 2003 the ECB‘s monetary policy strategy consisted of three main elements: a quantitative definition of price stability, a prominent role for money in the assessment of risks to price stability (aggregate M3 as a reference value), and a broadly based assessment of the outlook for price developments. Nevertheless, since May 2003 M3 or any other monetary aggregate has lost its prominent role in the ECB‘s strategy. Therefore the nowadays ECB‘s monetary policy strategy consists of a quantitative definition of the primary objective of price stability and an analytical framework based on two pillars – economic analysis and monetary analysis. These two pillars are used by the ECB‘s Governing Council in the overall assessment of risks to price stability and in monetary policy decisions.The empirical part of this article is based on time series correlation between money supply growth and inflation in selected member countries of the Economic and Monetary Union (EMU - Eurozone) during the period 1995–2005. The time series are divided into two parts. The first part covers data for selected member countries of the European Union from 1995 till 1998, i.e. before the establishment of the EMU. Whereas the second part includes data for the whole Eurozone since its official start in 1999 to 2005. The time series are adjusted by SARIMA models.

scholarly journals Regular Econometric Model of Taylor for Albania

2016 ◽  
Vol 5 (1) ◽  
pp. 123
Author(s):  
Ergys Misha
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rates ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Stock Exchange ◽  
Central Banks ◽  
Financial Assets

The Taylor’s Rule Central Banks is applying widely today from Central Banks for design the monetary policy and for determination of interest rates. The purpose of this paper is to assess monetary policy rule in Albania, in view of an inflation targeting regime. In the first version of the Model, the Taylor’s Rule assumes that base interest rate of the monetary policy varies depending on the change of (1) the inflation rate and (2) economic growth (Output Gap).Through this paper it is proposed changing the objective of the Bank of Albania by adding a new objective, that of "financial stability", along with the “price stability”. This means that it is necessary to reassess the Taylor’s Rule by modifying it with incorporation of indicators of financial stability. In the case of Albania, we consider that there is no regular market of financial assets in the absence of the Stock Exchange. For this reason, we will rely on the credit developmet - as a way to measure the financial cycle in the economy. In this case, the base rate of monetary policy will be changed throught: (1) Targeting Inflation Rate, (2) Nominal Targeting of Economic Growth, and (3) Targeting the Gap of the Ratio Credit/GDP (mitigating the boom cycle, if the gap is positive, and the contractiocycle if the gap is negative).The research data show that, it is necessary that the Bank of Albania should also include in its objective maintaining the financial stability. In this way, the contribution expected from the inclusion of credit gap indicators in Taylor’s Rule, will be higher and sustainable in time.

Large-scale EMU: the May Council decisions and implications for monetary policy

1998 ◽  
Vol 165 ◽  
pp. 109-114
Author(s):  
John Arrowsmith
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Monetary Union ◽  
Large Scale ◽  
Economic And Monetary Union ◽  
European Central ◽  
Political Independence ◽  
Future Viability ◽  
Heads Of State ◽  
The Eu

The decision by the EU Council of Heads of State or of Government at the beginning of May, that eleven Member States would form an Economic and Monetary Union on 1 January 1999, occasioned little surprise: financial markets and economic commentators had become increasingly convinced over the preceding months that EMU would start on time with a membership extending beyond the six ‘core’ countries—France, Germany, the Benelux countries and Austria—to include also Finland, Ireland, Italy, Portugal and Spain. What was not widely expected was that the ECOFIN and HoSoG Councils on 1–2 May appear to have spent little time debating the economic case for including each of the eleven countries but to have been preoccupied instead with a heated political row about who should be appointed President of the European Central Bank.This note assesses the possible consequences that this cavalier approach to the vital question of membership of monetary union might have for the conduct of policy in Stage 3 and the future viability of EMU. It examines the economic evidence that had been presented to the Councils to see whether their judgement that the economies of all eleven countries are sufficiently convergent is warranted. It also considers whether the unseemly compromise through which the dispute about the ECB Presidency was resolved will prejudice the political independence of the ECB in its conduct of monetary policy.

scholarly journals Inflation Targeting Approach: An Evaluation of the Application Process in Turkey

2013 ◽  
Author(s):  
Serdar Öztürk ◽  
Ali Sözdemir ◽  
Özlem Ülger
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Developed Countries ◽  
The Other ◽  
Price Stability ◽  
Application Process ◽  
Point Target ◽  
The Stability ◽  
Republic Of Turkey ◽  
Developing And Developed Countries

As a result of many countries don’t provide the achievement as regards the satisfaction of the price stability between 1970 and 1990, the other targets and the stability programs aimed at these targets were put away and price stability as a point target was put forward in this process. In this context, inflation targeting approach has been formed as providing price stability and the fight against the inflation after 1990s. The first application of inflation targeting approach by the New Zealand in 1990 affected The Central Bank of Republic of Turkey (CBRT), because of positive impacts on many countries such as developing and developed countries. The results of Inflation targeting approach that has been applied by many countries following New Zealand's experience are positive. Thus, CBRT explained to take place inflation targeting of the point target in monetary policy at the beginning of 2002. Because Turkey don’t provide with the application set of the preconditions for this approach, CBRT decided to remove the elements that is restricting monetary policy and carried into practice "the implicit inflation targeting" until meeting this conditions. In the process of implicit inflation targeting approach, after the conditions related technical infrastructure was improved a new opinion, The CBRT announced to practice "the explicit inflation targeting" approach by the beginning of 2006.

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