Working Paper: CEPR ID: DP2380
Authors: Lars E. O. Svensson
Abstract: This paper is a brief evaluation of the Eurosystem's monetary-policy regime after its first year, in particular of the extent to which it is similar to inflation targeting as practiced by an increasing number of central banks. I examine the Eurosystem's goals, framework for monetary-policy decisions and communication with outsiders. Criteria for evaluation are whether the goals are unambiguous and appropriate; whether the decision framework is efficient in collecting and processing information and reaching decisions that are appropriate relative to the goals; and whether the communication is effective in motivating decisions, simplifying external evaluation and thereby improving transparency and accountability. I also consider whether the actual instrument setting has been appropriate, given the information available at the times of decision.
Keywords: monetary targeting; ECB; transparency
JEL Codes: E42; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| eurosystem's monetary strategy (E52) | flexible inflation targeting (E63) |
| publication of internal forecasts (G17) | enhance similarity to flexible inflation targeting (E63) |
| first pillar of the eurosystem's strategy is redundant (E58) | necessity of second pillar (Z12) |
| ambiguity in the definition of price stability (E31) | effectiveness of monetary policy (E52) |
| lack of clarity in price stability definition (E31) | hinder effective monetary policy (E52) |
| substantial room for improvement regarding internal consistency and transparency (E61) | effectiveness of monetary policy (E52) |
| decisions regarding interest rates (E43) | reliance on external forecasts (F37) |