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The euro at 25 and what’s next for the ECB?

Padziļināta analīze 05-02-2024

The euro has proved to be remarkably resilient and is popular with the EU’s citizens. This paper reviews the reasons for this and argues that the euro project is more resilient now due to several institutional changes. It also discusses how the ECB’s monetary policy has evolved over time, its policy stance in recent years and some of the ways in which it may need to change in the future. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on ...

Any greening of monetary policy is likely to have at best a marginal effect on emissions given the very small spreads on the yields of green bonds and the cap on emissions inherent in the EU’s emissions trading system. Trying to limit the supply of capital to brown industries could backfire as these industries are those most in need of financing for capital-intensive decarbonisation. These arguments apply both to the tilting of investments under the corporate sector purchase programme (CSPP) towards ...

We present a general framework apt to explain why central banks care about the co-existence of different transmission channels of monetary policy, and hence they endow themselves with different policy instruments. Within this framework, we then review and examine the key instruments adopted by the ECB to tackle the post-pandemic challenges, with a view to their consistency and efficacy. Finally, we make a few considerations about the future perspectives of monetary policy. This paper was provided ...

In the post-COVID environment, the ECB might face many and related trade-offs associated with the risk of being dominated by policy concerns other than price stability. Most of these risks could be reduced by a revision of the euro area governance framework, the creation of a new mechanism to provide financial assistance, and the implementation of a one-off intervention to reduce the exposure of the Eurosystem towards the euro area sovereign debts. This document was provided by the Policy Department ...

The Treaty on the Functioning of the European Union specifies the maintenance of price stability in the euro area as the primary objective of EU single monetary policy. Subject to that, it should also contribute to the achievement of the Union's objectives, which include 'full employment' and 'balanced economic growth'. Responsibility for the conduct of monetary policy is attributed to the Eurosystem, which carries out its tasks through a set of standard instruments referred to as the 'operational ...

The ECB’s Mandate and Legal Constraints

Padziļināta analīze 15-05-2020

This paper considers how the ECB can implement its mandate in the current crisis conditions and the legal constraints that exist on its actions. The current position of the euro area economy means the threat to meeting the ECB’s primary objective of price stability stems from the possibility of a long period of below-target inflation. This means the ECB should consider a wide range of stimulative policies that would help it meet both its primary and secondary objectives. The ECB, however, will be ...

This paper assesses the scope for monetary policy in the euro area as it returns to normal financial conditions without support from easy money but with a financial stability objective (whether legislated or not). We find that both financial stability and traditional monetary objectives can be achieved without one limiting the achievement of the other because, in the new normal, the ECB can use new policy tools derived from the regulatory metrics required under the post-crisis macro-prudential framework ...

Post-crisis Excess Liquidity and Bank Lending

Padziļināta analīze 14-09-2018

With the Asset Purchase Program, the European Central Bank has supplied significant amounts of liquidity into the financial system starting from 2015, resulting yet into a new upswing in excess liquidity. The expanded asset purchase programme (APP) program broadly coincided with further cuts in the ECB’s deposit facility rate, which currently stands at -0.4%. Against this background, this note assesses the ECB policy of negative rate on the deposit facility and discusses the associated risks in the ...

For the Monetary Dialogue of 9 July 2018, the Committee on Economic and Monetary Affairs (ECON) asked monetary experts to analyse the risks and collateral constrains related to the ECB non-standard monetary measures. This note, provided by Policy department A, lists the in-depth analyses prepared by the experts.

The statutes of the European Central Bank (ECB) stipulate that it should have recourse to national central banks (NCBs) to carry out monetary policy operations. Such a structure would not be a problem if these operations were all identical across member states and if the resulting profits and losses were shared. But this is not the case today. In this sense, the euro area no longer has a ‘single’ monetary policy. There is little one can do about this situation, except to wait until the government ...