Professional Documents
Culture Documents
5 .5
5 .0
4 .5
4 .0
3 .0
2 .5
2 .0
1.5
1.0
Deposit rate
0 .5
0 .0
199 9 200 2 001 20 0 200 200 200 200 2 00 200 200 2010
• Possible Strategies
• Interest-rate stability
• Disadvantages
– Rely on stable relationship between inflation and
targeted monetary aggregate
– Must have full control over monetary aggregate
2. Inflation Targeting
• First introduced by New Zealand in 1990. Since then
adopted by Canada (1991), the United Kingdom (1992),
Sweden and Finland (19930, and many others
• Disadvantages
– Lack of transparency
– Strong dependence on the preferences, skills, and
trustworthiness of individuals in charge
– Low accountability
ECB’s Monetary Policy: Goal
• Price stability, defined as “…a year-on-year increase in
the Harmonized Index of Consumer Prices (HICP) for the
euro area, close but below 2%”
3.5
2.5
1.5
0.5
-0.5
-1.5
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
HICP - totaal
'core-inflatie': HICP exclusief onbewerkt voedsel en energie
ECB’s Monetary Policy:
Two-Pillar Strategy
• First pillar: Economic Analysis
– Monitoring of indicators (wages, energy
prices, exchange rate, yield curve, etc)
to assess the short to medium-term risks
to price stability
• Second pillar: Monetary Analysis
– Money stock is ‘reference value’ to
assess the medium to long-term risks to
price stability
– M3 reference value: 4.5% (consistent with
2% inflation in the long run)
– Same procedure as Bundesbank
Money growth euro area
Annual percentage changes
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010