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THE EUROPEAN CENTRAL BANK: RECENT REFORMS AND FUTURE PROSPECTS. Álvaro Anchuelo Crego Research Group in International Economics Real Colegio Complutense, Harvard Summer 2005. PARTS. I: EMU’s Eastern Enlargement. When?
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Álvaro Anchuelo Crego
Research Group in International Economics
Real Colegio Complutense, Harvard
UP TO DATE
Finland (0.33) + Sweden (0.92) + Denmark (1.13)
Average = 0.8 + 1.5 = 2.3%
Finland (0.33) + Netherlands (1.32) + Germany (1.87)
Average = 1.2 + 1.5 = 2.7%
2.2 + 1.5 = 3.7%
2 + 1.5 = 3.5%
Finland (3.95) + Sweden (4.17) + Denmark (4.12)
Average = 4 + 2 = 6%
Finland (3.95) + Netherlands (3.92) + Germany (3.87)
Average = 3.9 + 2 = 5.9%
for a period of at least two years without devaluing (changing its central rate) against the euro
* No opting-out for new members, but date of entry into ERM II not specified (eg. Sweden)
They want to introduce € cash since the beginning
THEY ARE THE LARGE ECONOMIES.
REFORMS IN THE DECISION MAKING
COUNCIL OF THE ECB
As soon as the 22nd Member State enters, 3 groups:
3) The remaining governors, who share 3 voting rights.
Voting rights will start operating as the 16th Member State enters first on the basis of two groups:
HOW DOES THE ECB COMPARE TO OTHER CENTRAL BANKS?
2) Groups within which voting rotates. US Fed, ECB.
LET’S SEE MAINLY UK (MODEL OF GOOD PRACTICE) AND US (MODEL FOR ECB?)
One vote each group. Rotating annually (1st January)
Non-voting Presidents attend the meeting and participate in discussions
NOT TRUE THAT ECB MODEL
2) Broadly based economic analysis to identify short to medium-term risks. Identify the nature of shocks. SORT OF INTERNAL INFLATION TARGETING. THE IMPORTANT ONE.
2) Former 1st pillar becomes the 2nd (Monetary Analysis). No longer review the reference value for M3 on an annual basis.
Main tool: check if the inflation forecast (model based + judgment) is hitting the target at the 2 year horizon under current interest rates.
Although not mechanical reaction.
Fan charts to indicate probabilities.
7 July 2005 - Monetary policy decisions
At today’s meeting the Governing Council of the ECB
decided that the minimum bid rate on the main refinancing
operations and the interest rates on the marginal lending
facility and the deposit facility will remain unchanged
at 2.00%, 3.00% and 1.00% respectively.
The President of the ECB will comment on the considerations
underlying these decisions at a press conference starting
at 2.30 p.m. today.
The Governor invited the Committee to vote
on the proposition that the repo rate should be
maintained at 4.75%. Five members of the
Committee (the Governor, Rachel Lomax,
Andrew Large, Richard Lambert and Paul Tucker)
voted in favour. Four members (Kate Barker,
Charles Bean, Stephen Nickell and David Walton)
voted against, preferring a reduction in the repo rate of 25 basis points.