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European Central Bank (european + central_bank)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	82%

Selected Abstracts

Market-Based Measures of Monetary Policy Expectations and Their Evolution Since the Introduction of the Euro

ECONOMIC NOTES, Issue 3 2009
Fabio Filipozzi
The paper considers the relation between monetary policy expectations and financial markets in the case of Europe. A number of money market instruments are compared, with the result that the 1-month forward interest rates extracted from the Libor yield curve has the best prediction power of the future monetary policy path. These forward rates have been used to study the evolution of market expectations regarding the monetary policy of the European Central Bank (ECB). The sharp increases and the following decreases in interest rates during 2000,2001 have reduced the predictive power of money market instruments, but smoother management of interest rates and better communication from the ECB has helped to improve the forecasting power of money market instruments. [source]

Forecasting the Direction of Policy Rate Changes: The Importance of ECB Words

ECONOMIC NOTES, Issue 1-2 2009
Carlo Rosa
This paper evaluates the predictive power of different information sets for the European Central Bank (ECB) interest-rate-setting behaviour. We employ an ordered probit model, i.e. a limited dependent variable framework, to take into account the discreteness displayed by policy rate changes. The results show that the forecasting ability of standard Taylor-type variables, such as inflation and output gap, is fairly low both in-sample and out-of-sample, and is comparable to the performance of the random walk model. Instead by using broader information sets that include measures of core inflation, exchange rates, monetary aggregates and financial conditions, the accuracy of the forecasts about ECB future actions substantially improves. Moreover, ECB rhetoric considerably contributes to a better understanding of its policy reaction function. Finally, we find that that the ECB has been fairly successful in educating the public to anticipate the overall future direction of its monetary policy, but has been less successful in signalling the exact timing of rate changes. [source]

The Choice Among Interbank Settlement Systems: The European Experience

ECONOMIC NOTES, Issue 1 2003
Angelo Baglioni
This paper addresses the choice of banks between alternative channels for interbank payments. The conventional view assumes a tradeoff between the safety of real-time gross settlement (RTGS) and the liquidity savings of multilateral netting. Moreover, correspondent banking is believed to be inefficient, both in terms of liquidity and of administrative costs. In the last decade, however, the impulse of the Committee on Payment and Settlement Systems, technological changes and the management of RTGS systems by central banks have reduced the difference between the various systems. This is especially true for risk, whereas liquidity cost crucially depends on the refinancing policy adopted by the central bank and the co-ordination among the participants. On the basis of the recent evolution of payment systems in Europe, we verify the importance of liquidity, as well as other variables like transaction costs, for the choice of banks among different settlement systems. Cost factors imply that the nature of payments flows (value, commercial versus financial) and some structural features of the banking systems (dimension of the intermediaries, concentration of the banking sector) become important. The analysis is carried out both through a theoretical model and a cross-country comparison based on three data sources: ECB (European Central Bank, EBA (Euro Banking Association) and SWIFT (Society for Worldwide Interbank Financial Telecommunication). [source]

European Monetary Union: the dark sides of a major success

ECONOMIC POLICY, Issue 46 2006
Charles Wyplosz
SUMMARY European monetary union THE DARK SIDES OF A MAJOR SUCCESS This paper revisits the debates that have surrounded the launch of a unique experience: the adoption of a common currency among developed countries. A striking aspect of this history is that, pressed by what they correctly identified as a window of opportunity, policy-makers crafted this complex project in a short period of time, largely eschewing inputs from the academic profession. Academic research, in turn, developed its own views, which turned out to be critical of some ley orientations, yet it generally recognizes that, in the end, the launch of the euro has been a major success. Over time, many of the academic criticisms have been taken on board, but not yet fully. The monetary strategy has been slightly amended, but it remains the subject of disagreements between the European Central Bank and monetary economists. Events have confirmed that the Stability and Growth Pact was ill-designed; its reformulation goes some way to address some of the concerns but not all of them. Its ability to deliver fiscal discipline is in doubt. Another look at the experiment highlights the gap between the principles laid out by those who designed the monetary union and the pragmatism that has prevailed thereafter. The resulting tension between principles and actions sometimes obscures the fact that the Eurosystem has acted wisely so far. The widespread perception that monetary policy is not as transparent as it should be and suffers from a lack of adequate democratic accountability is not just annoying. The general public, including politicians, sometimes blames the Eurosystem for Europe's poor growth performance since the adoption of the euro. This is unfair and could dangerously undermine the monetary union if the Eurosystem were to become the scapegoat for the slow and incomplete reforms that are needed to revigorate the euro area's economies. , Charles Wyplosz [source]

The two pillars of the European Central Bank

ECONOMIC POLICY, Issue 40 2004
Stefan Gerlach
SUMMARY The Pillars of The ECB I interpret the European Central Bank's two-pillar strategy by proposing an empirical model for inflation that distinguishes between the short- and long-run components of inflation. The latter component depends on an exponentially weighted moving average of past monetary growth and the former on the output gap. Estimates for the 1971,2003 period suggest that money can be combined with other indicators to form the ,broadly based assessment of the outlook for future price developments' that constitutes the ECB's second pillar. However, the analysis does not suggest that money should be treated differently from other indicators. While money is a useful policy indicator, all relevant indicators should be assessed in an integrated manner, and a separate pillar focused on monetary aggregates does not appear necessary. ,Stefan Gerlach [source]

Using Taylor Rules to Understand European Central Bank Monetary Policy

GERMAN ECONOMIC REVIEW, Issue 3 2007
Stephan Sauer
Taylor rule; European Central Bank; real-time data Abstract. Over the last decade, the simple instrument policy rule developed by Taylor has become a popular tool for evaluating the monetary policy of central banks. As an extensive empirical analysis of the European Central Bank's (ECB) past behaviour still seems to be in its infancy, we estimate several instrument policy reaction functions for the ECB to shed some light on actual monetary policy in the euro area under the presidency of Wim Duisenberg and answer questions like whether the ECB has actually followed a stabilizing or a destabilizing rule so far. Looking at contemporaneous Taylor rules, the evidence presented suggests that the ECB is accommodating changes in inflation and hence follows a destabilizing policy. However, this impression seems to be largely due to the lack of a forward-looking perspective in such specifications. Either assuming rational expectations and using a forward-looking specification, or using expectations as derived from surveys result in Taylor rules that do imply a stabilizing role of the ECB. The use of real-time industrial production data does not seem to play such a significant role as in the case of the United States. [source]

The Liquidity Premium in the Money Market: A Comparison of the German Mark Period and the Euro Area

GERMAN ECONOMIC REVIEW, Issue 2 2006
Alain Durré
Expectations hypothesis; money market; liquidity premium; cointegration analysis Abstract. This paper investigates to what extent the expectations hypothesis of the term structure (EHTS) of interest rates receives some support since the launch of the European single currency. Empirical evidence shows that in general this theory applies to most European countries, and to Germany in particular. The objective of this paper thus is twofold. First, the EHTS for the German money market and for a larger sample including the German mark period and the euro money market is tested in order to check whether the results for the former are affected by the new financial environment since January 1999. Second, the implications of the results for the monetary policy assessment are discussed. We estimate cointegrating vector autoregressive models in order to quantify the level of the liquidity premium. The results suggest that financial markets do not consider the monetary policy of the European Central Bank simply as the one prevailing during the German period. [source]

Britain, EMU and the European economy

INDUSTRIAL RELATIONS JOURNAL, Issue 4 2000
Steve Bradley
In January 1999, 11 member countries of the European Union ,irrevocably' locked the foreign exchange values of their currencies to the euro, and they committed themselves to abandon their currencies in favour of the euro in 2002. As a result, these countries ceased to operate independent monetary policies. Monetary policy for the whole euro-zone became the responsibility of the European Central Bank (ECB), whose primary objective is to maintain a low and stable rate of price inflation for the euro currency. The rules governing Economic and Monetary Union (EMU) were laid down in the treaty of Maastricht in 1992. As conditions for entry to EMU, the treaty specified ,convergence criteria' which consisted of upper limits for several macroeconomic aggregates including, notably, a 3 per cent maximum for the ratio of the public sector deficit to GDP and 60 per cent for the ratio of public debt to GDP.1 In February 1998 the 11 applicant countries submitted statistical analyses relating to their satisfaction of these conditions. Despite doubts as to whether some of them had strictly met the conditions, the European Commission deemed them all eligible, and the euro was launched.2 The British government, though more clearly eligible than most other EU countries on the basis of the convergence criteria, decided to defer its decision on entry. In this paper we consider the arguments for and against Economic and Monetary Union, and in particular whether it would be in Britain's interest to join. We begin with a brief review of the state of the European economy and an analysis of the first year performance of the new Euro currency. [source]

Central Bank Accountability and Transparency: Theory and Some Evidence

INTERNATIONAL FINANCE, Issue 1 2002
Sylvester C. W. Eijffinger
The first part of this paper outlines the concept of democratic accountability of central banks, and compares the legal accountability of the European Central Bank (ECB) with some other central banks (Bank of Canada, Bank of Japan, Bank of England and the Federal Reserve System). The second part presents a theory of central bank accountability. Two aspects of accountability are considered: transparency of actual monetary policy and the question of who bears final responsibility for monetary policy. The paper shows that accountability through transparency leads to a lower expected rate of inflation and less stabilization of supply shocks. Accountability through shifting final responsibility in the direction of the government leads to higher inflationary expectations and more stabilization of supply shocks. [source]

Policy words and policy deeds: the ECB and the euro

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 3 2008
Pierre L. Siklos
Abstract This paper examines the role of the European Central Bank (ECB) communication activities on daily eurodollar exchange rate and interest rates. We estimate the relationship between monetary policy and the exchange rate using a technique that explicitly recognizes the joint determination of both the levels and volatilities of these variables. We also consider more traditional estimation strategies as a test of the robustness of our main results. We introduce a new indicator of ECB communication policies that focuses on what the ECB says about the future economic outlook for the euro area along five different economic dimensions. The impact of the ECB communication policies is more apparent in the time-series framework than in the heteroskedasticity estimator approach. Time-series estimates reveal that interest rate changes generally have a much larger impact on exchange rate movements, and their volatility, than do ECB verbal pronouncements. Previous studies that conclude that news effects are significant at the daily frequency may have reached such a conclusion because the measurement of news was too highly aggregated. The endogeneity of the exchange rate,interest rate relationship is more apparent when the proxy for monetary policy is the euro area,US differential than when any other proxy for monetary policy is employed. Copyright © 2007 John Wiley & Sons, Ltd. [source]

The Allocation of Power in the Enlarged ECB Governing Council: An Assessment of the ECB Rotation Model

JCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 5 2006
ANSGAR BELKE
This study analyses the allocation of power in the Governing Council of the European Central Bank (ECB) as it enlarges to accommodate new members of the economic and monetary union. For this purpose, two classical power indices that have their origin in solutions to co-operative games are applied. First, an assessment is made of the effects of enlargement on the voting power of different subgroups of the Governing Council that arise in the wake of the continuous accession process. Second, a systematic comparison is carried out to the status quo rule (,one member, one vote') with respect to the voting power of the ECB Executive Board and to the representativeness of European monetary policy, along with the potential for its renationalization. [source]

Asymmetries in Transatlantic Monetary Policy-making: Does the ECB Follow the Fed?,

JCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 5 2005
ANSGAR BELKE
The belief that the European Central Bank (ECB) follows the US Federal Reserve (the Fed) in setting its policy is so entrenched with market participants and commentators that the search for empirical support would seem to be a trivial task. However, this is not the case. We find that the ECB is indeed often influenced by the Fed, but the reverse is true at least as often if one considers longer sample periods. There is empirically little support for the proposition that there has for a long time been a systematic asymmetric leader-follower relationship between the ECB and the Fed. Only after September 2001 is there more evidence of such an asymmetry. There is a clear-cut structural break between the period pre-economic and monetary union (EMU) and EMU itself in terms of the relationship between short-term interest rates on both sides of the Atlantic. [source]

Cutting the Bank Down to Size: Efficient and Legitimate Decision-making in the European Central Bank After Enlargement

JCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 3 2003
Dorothee Heisenberg
This article examines the problems enlargement poses for one specific supranational organization, the European Central Bank (ECB). The article synthesizes three different literatures, on enlargement, ECB transparency and legitimacy, and effective monetary policy-making, which up until now have not been linked. The three issues are related, and ought to be considered together when policy choices regarding institution-building are made, because the choices in one issue constrain those in the others. Specifically, the argument is that transparency in the decision-making process is key to allowing the denationalization of decision-making to make it more effective. The more transparent the policy-making process is, the easier it is to have a rotation of votes. Conversely, if the policy-making process is opaque, a system of combining regions into one voting entity is better because the citizenry is represented in every vote, even if in a highly diluted fashion. The proposed ECB reform does not adequately address legitimate concerns on the part of the public as to how the decisions are made within the Governing Council. [source]

The Democratic Accountability of the European Central Bank: A Comment on Two Fairy-tales

JCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 3 2000
Jakob De Haan
The European Central Bank (ECB) is widely considered to be (legally) independent. Buiter (1999) critizes the ECB for its lack of democratic accountability, which he does not define in a very precise way. Issing (1999) replies to some of the points raised by Buiter and argues that the ECB is both accountable and transparent. We first outline the concept of democratic accountability of central banks, before we comment on some of the disagreements between Buiter and Issing. Furthermore, we compare the legal accountability of the ECB with those of some other central banks (Bank of Canada, Bank of Japan, Bank of England and the Federal Reserve System). [source]

Measurement Bias in the HICP: What do we know and What do we need to know?

JOURNAL OF ECONOMIC SURVEYS, Issue 1 2004
Mark A. Wynne
Abstract. The Harmonized Index of Consumer Prices (HICP) is the primary measure of inflation in the euro area, and plays a central role in the policy deliberations of the European Central Bank (ECB). The ECB defines its Treaty mandate of price stability as ,, a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%[,] to be maintained over the medium term.' Among the rationales given for defining price stability as prevailing at some positive measured inflation rate is the possibility that the HICP as published incorporates measurement errors of one sort or another that may cause it to systematically overstate the true rate of inflation in the euro area. This paper reviews what currently is known about the scope of measurement error in the HICP. We conclude that given the vague conceptual framework of the HICP, the scant research on price measurement issues in the EU and the ongoing improvements in the HICP, there is very little scientific basis at this time for a point (or even an interval) estimate of a positive bias in the HICP. [source]

Forecasting growth and inflation in an enlarged euro area

JOURNAL OF FORECASTING, Issue 5 2009
Thomas Flavin
Abstract We compare models for forecasting growth and inflation in the enlarged euro area. Forecasts are built from univariate autoregressive and single-equation models. The analysis is undertaken for both individual countries and EU aggregate variables. Aggregate forecasts are constructed by both employing aggregate variables and by aggregating country-specific forecasts. Using financial variables for country-specific forecasts tends to add little to the predictive ability of a simple AR model. However, they do help to predict EU aggregates. Furthermore, forecasts from pooling individual country models usually outperform those of the aggregate itself, particularly for the EU25 grouping. This is particularly interesting from the perspective of the European Central Bank, who require forecasts of economic activity and inflation to formulate appropriate economic policy across the enlarged group. Copyright © 2008 John Wiley & Sons, Ltd. [source]

Modelling the daily banknotes in circulation in the context of the liquidity management of the European Central Bank,

JOURNAL OF FORECASTING, Issue 3 2009
Alberto Cabrero
Abstract The main focus of this paper is to model the daily series of banknotes in circulation. The series of banknotes in circulation displays very marked seasonal patterns. To the best of our knowledge the empirical performance of two competing approaches to model seasonality in daily time series, namely the ARIMA-based approach and the Structural Time Series approach, has never been put to the test. The application presented in this paper provides valid intuition on the merits of each approach. The forecasting performance of the models is also assessed in the context of their impact on the liquidity management of the Eurosystem.,,Copyright © 2008 John Wiley & Sons, Ltd. [source]

Institutional Trust and Subjective Well-Being across the EU

KYKLOS INTERNATIONAL REVIEW OF SOCIAL SCIENCES, Issue 1 2006
John Hudson
SUMMARY This paper analyzes the impact of institutions upon happiness through their intermediary impact upon individual trust. The empirical work is based on Eurobarometer data covering the 15 countries of the EU prior to its expansion in 2004. With respect to trust, we present evidence that, although it is endogenous with respect to the performance of the institution, changes in the individual's personal circumstances can also have an impact, indicating that trust is not simply learned at an early age. Hence unemployed people tend to have lower levels of trust not only in the main economic institutions , government and the Central Bank , but in other state institutions too such as the police and the law. Trust also differs in a systematic manner with respect to education and household income, increases (decreases) in either increase (decrease) trust in most institutions. If we assume that more educated people make better judgments, this suggests that on average people tend to have too little trust in institutions. However, it is also possible that both of these variables impact on the interaction between institutions such as the police and other government agencies and the citizen, with prosperous, well educated people being at an advantage and possibly able to command more respect. Age too impacts on institutional trust. For the UN, the unions, big business, voluntary organizations and the EU, trust first declines and then increases with the estimated turning points ranging between 44 and 56 years. For most other organizations trust significantly increases with age. Turning to subjective well-being, we find the standard set of socio-economic variables to be significant. But the focus here is on the impact of institutional trust. We find that trust (mistrust) in the European Central Bank, the EU, national government, the law and the UN all impact positively (negatively) on well-being. Hence overall our results support the conclusion that happiness does not solely lie within the realm of the individual, but that institutional performance also has a direct impact upon subjective well-being. [source]

Internationale Finanzkrise und die Geldpolitik der Europäischen Zentralbank

PERSPEKTIVEN DER WIRTSCHAFTSPOLITIK, Issue 4 2009
Manfred J. M. Neumann
This article puts the focus on the European Central Bank (ECB). We test the hypothesis that the ECB's change of concept in 2003 (money in the background) paved the way to follow the Fed's overly expansionary monetary policy. We also discuss if policy should be geared to financial market stability. In contrast to the Greenspan-Bernanke-Mishkin view, some modest leaning against the bubble is supported. Finally, the ECB's response to the crisis is evaluated. Cheap long-run jumbo loans and reduced security standards are potentially dangerous. [source]

Devisenmarktoperationen und Informationspolitik der Europäischen Zentralbank

PERSPEKTIVEN DER WIRTSCHAFTSPOLITIK, Issue 1 2002
Michael Frenkel
This paper analyzes the effectiveness of the foreign exchange market interventions of the European Central Bank (ECB) by studying the information policy of the ECB and examining whether the ECB relied on a specific transmission channel to influence exchange rates. Against the background of a discussion of the transmission channels through which foreign exchange market interventions of central banks may affect exchange rates, we are led to the conclusion that the information policy of the ECB was not in line with the assumptions underlying the transmission channels discussed in the theoretical literature. We argue that this finding could provide a possible explanation for the ineffectiveness of the ECB's foreign exchange market intervention in the fall of 2000. [source]

ASSESSING EUROPEAN CENTRAL BANK'S CREDIBILITY DURING THE FIRST YEARS OF THE EUROSYSTEM: A BAYESIAN EMPIRICAL INVESTIGATION

THE MANCHESTER SCHOOL, Issue 5 2010
GIANNI AMISANO
In this paper we extend Svenssons (CEPR Discussion Paper 940, April 1994) ,simplest test' of inflation target credibility inside a Bayesian econometric framework and obtain various estimates of the European Central Bank's monetary policy credibility. Overall, our empirical evidence suggests that the strategy followed by the European Central Bank was successful in building a satisfactory degree of reputation. However, we find some significant credibility reversals concerning both anti-inflationary and anti-deflationary credibility. These reversals, in turn, are closely related to the evolution of the cyclical macroeconomic conditions in the euro area. [source]

The Stability of Emu-wide Money Demand Functions and the Monetary Policy Strategy of the European Central Bank

THE MANCHESTER SCHOOL, Issue 2 2000
Annick Bruggeman
In this paper we investigate whether monetary aggregates could play a role as either intermediate targets or indicators of the single monetary policy of the European Central Bank (ECB). To this end we estimate money demand functions for the European Economic and Monetary Union and test for their stability. Our estimations suggest that M3H in particular can play a role in both a monetary and an inflation targeting strategy. If the ECB chooses to opt for an inflation targeting strategy MR and even M1, in addition to M3H, may well serve as important indicators, alongside a number of other financial and real variables. [source]

Some Fiscal Implications of Monetary Policy

BULLETIN OF ECONOMIC RESEARCH, Issue 1 2003
Harris Dellas
We study the implications of alternative monetary targeting procedures for real interest rates and economic activity. We find that countercyclical monetary policy rules lead to higher real interest rates, higher average tax rates, lower output but lower variability of tax rates and consumption relative to procyclical rules. For a country with a high level of public debt (e.g. Italy), the adoption of a countercyclical procedure such as interest rate pegging may conceivably raise public debt servicing costs by more than half a percentage point of GNP. Our analysis suggests that the current debate on the targeting procedures of the European Central Bank ought to be broadened to include a discussion of the fiscal implications of monetary policy. [source]

Using Taylor Rules to Understand European Central Bank Monetary Policy

The Transmission of US Monetary Policy to the Euro Area,

INTERNATIONAL FINANCE, Issue 1 2010
Stefano Neri
This paper studies how changes in the federal funds rate by the US Federal Reserve affect the eurozone economy. In our analysis, the international transmission mechanism works through movements in the exchange rate, commodity prices, short-term interest rates and the trade balance. We find that an increase in the federal funds rate causes the euro to immediately depreciate, while commodity, and in particular oil, prices decline sharply, reflecting a decline in demand. Lower commodity prices stimulate household consumption in the short run, and the higher aggregate demand induces an expansion of eurozone economic activity. Our results show that the effects of changes in the federal funds rate on commodity prices are greater than previously found in the literature. Our analysis also assesses the likely effects on the eurozone economy of the European Central Bank's (ECB's) own responses to macroeconomic developments. We find that the expansionary effect of lower commodity prices and a depreciated euro on the eurozone economy is partially offset by the ECB increasing short-term nominal interest rates to curb inflationary pressures in an expanding economy. This result highlights the importance of commodity prices and the euro,dollar exchange rate as inputs into European monetary policy-making, as seen, for example, in the Eurosystem staff macroeconomic projections used by the Governing Council to assess the risks to price stability. [source]

The dynamic relationship between the euro overnight rate, the ECB's policy rate and the term spread

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 3 2007
Dieter Nautz
Abstract This paper investigates how the dynamic adjustment of the European overnight rate Eonia to the term spread and the European Central Bank's (ECB's) policy rate is affected by rate expectations and the operational framework of the ECB. In line with recent evidence found for the US and Japan, the reaction of the Eonia to the term spread is non-symmetric. Moreover, the response of the Eonia to the policy rate depends on both, the repo auction format and the position of the Eonia in the ECB's interest rate corridor. Copyright © 2006 John Wiley & Sons, Ltd. [source]