By Jakob de Haan
The adoption of the euro in 1999 by way of eleven member states of the eu Union created a unmarried foreign money sector moment in monetary measurement merely to the United States. The euro zone's financial coverage is now set via the ecu important financial institution (ECB) and its Governing Council instead of by way of person nationwide vital banks. This CESifo quantity examines matters that experience arisen within the first years of ECB financial coverage and analyzes the impression that present ECB coverage approach and constructions can have within the future.After an in depth description and evaluate of ECB financial coverage making that specializes in such matters as fee balance and the predictability of coverage judgements, the ebook turns to 2 very important concerns confronted through ecu primary bankers: the transparency and credibility of selection making and the ECB's decentralized constitution. After displaying that transparency in selection making complements credibility, the e-book discusses the ECB's efforts at openness, its political independence as assured through legislations, and its final responsibility. The booklet then considers the results of the decentralized ECB constitution, concentrating on company cycle synchronization, inflation differentials, and ameliorations in financial coverage transmission in gentle of the expansion of the financial union. The publication additionally discusses concepts for ECB institutional reforms, together with centralization, vote weighting, and cross-border local banks.
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Extra resources for The European Central Bank: Credibility, Transparency, and Centralization
However, in comparison to the objectives of central banks with an inflationtargeting strategy, the ECB definition of price stability is less precise. 4 For those banks that have adopted ranges, the lower bound is explicit, and the midpoint of the range is generally understood to represent the preferred inflation outcome. The policy horizon for most inflation-targeting central banks is one and a half to two years (Kieler 2003). As is pointed out by Castelnuovo et al. (2003), the announcement of a range permits the central bank to clearly signal the uncertainty surrounding future price developments and the imperfect controllability of inflation, 38 Chapter 3 particularly at short horizons.
The step of November 2001 did not come as a surprise, although the markets had only anticipated a small step. All in all, we can conclude that the evidence is mixed. By and large the markets predicted the ECB moves quite accurately. Only in a few cases did the ECB take the market by surprise, while in other cases the timing of the ECB steps was not entirely in line with market expectations. 2 Expectations according to Newspaper Reports In a further attempt to analyze to what extent financial markets were caught by surprise, we systematically gathered the newspaper reports about ECB policy decisions in the Financial Times (FT) and the Frankfurter Allgemeine Zeitung (FAZ) in 1999 and 2000.
The decision of August 2001 did not come as a surprise. The next decision to reduce rates after the terrorist attack of September 11, was decided upon by means of teleconferencing. This was the first decision taken between two regular Council meetings, and it was widely accepted, though it had not been expected. At the regular meeting on September 13, the Council decided to leave rates unchanged. This decision was justified by the imminent political and economic uncertainty after the terrorist attacks and the announcement that the ECB would coordinate its activities with the Federal Reserve and other major central banks.
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