Monetary Policy Flashcards
The main aim of the ECB
Price stability, in theory, maintain inflation below 2%
What actions does the management of Monetary Policy include?
Fix, control, and improve the financial stability and therefore, interest rates, inflation, with the goal of promoting economic growth
What are the cornerstones of Monetary Policy?
Economic analysis (checks real economic indicators - short and medium term determinants of price performance), and monetary analysis (evolution of monetary indicators)
How do they carry out monetary policies?
The ECB decides over different mechanism and then the national banks make sure the decisions are implemented
What the the instruments used in the monetary policies?
Open Market Operations, Permanent Facilities and Holding Minimal Reserves
What are Open Market Operations?
It is a way of making direct Monetary Policy, through the control of interest rates and market liquidity.
What are the different categories of OPM?
Reinforcing operations (weekly injection of liquidity through repo auctions), L-T refinancing operations (monthly injection), fine-tuning operations, and structural operations.
How are Open Market Operations carried out?
Via auction, that can be fixed (ECB specifies a rate and entities bid for an amount) or variable (american or dutch)
What is the auction type used by the ECB?
The “fixed rate” auction, dutch auction, where bids are filled according to a single marginal rate.
What is TARGET2?
It is the ESCB system for large euro payments, based on the interaction of national payments systems, where payments are settled individually with an immediate value
