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Briefing

Eurozone: Monetary Policy

Appears in: Europe, Macroeconomy, Eurozone, Monetary Policy and Inflation

Critical Issues

Background:

The European Central Bank is the independent central bank that governs monetary policy in the Eurozone. Though it is not formally an inflation-targeter, it aims primarily to maintain the euro's purchasing power in the euro area. Towards this end, the ECB formulated a monetary strategy based on the 'twin pillars' of price stability (annual inflation below but close to 2% over the medium term) and a compatible money supply growth rate (around 4.5% annual M3 growth). The ECB uses a variety of tools to achieve its goals, such as interest rates on loans to banks and open market operations. The global credit crisis starting late 2007 behooved the ECB to modify its lending and deposit facilities and expand its policy toolbox to include outright asset purchases and FX swaps.

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Associated Readings

Analysis BNP Paribas Clemente De Lucia Dec 03, 2009 Eurozone: ECB left key policy rate unchanged and spotlighted exit strategy of non conventional measures Analysis ECB Dec 03, 2009 Eurosystem staff macroeconomic projections for the euro area, December 2009 News ECB Dec 03, 2009 ECB announces details of refinancing operations up to 7 April 2010 Analysis ECB Jean-Claude Trichet Dec 03, 2009 Introductory statement, December 3, 2009 Analysis Danske Bank Frank Øland Hansen Aug 26, 2009 Arguments for ECB to hike in 2010 Analysis BBVA Miguel Jiménez et al Jun 04, 2009 ECB Watch: Dampening QE Analysis Goldman Sachs Scroll down for english May 07, 2009 Thoughts on interest rate floors and corridors Analysis Goldman Sachs (scroll down for english) Dirk Schumacher Apr 06, 2009 The ‘blocked’ interest rate channel Analysis Commerzbank November 2007 What prompts the ECB to modify interest rates?

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