The ECB’s Monetary Analysis Revisited
IMF Working Papers, July 1, 2008
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Bibliographic details
- Authors: Helge Berger, Thomas Harjes, Emil Stavrev
- Published: July 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451870299.001
Summary
- Monetary aggregates continue to play an important role in the ECB's policy strategy.
- The paper revisits the case for money by surveying the ongoing theoretical and empirical debate.
- Key conclusion: an exclusive focus on non-monetary factors alone may leave the ECB with an incomplete picture of the economy.
- Treating monetary factors as a separate matter is characterized as a second-best solution.
- The paper proposes a general-equilibrium inspired analytical framework that merges the economic and monetary "pillars" of the ECB's policy strategy as the most promising way forward.
- Within such a unified framework, the role played by monetary aggregates may be rather limited.
- An integrated framework would facilitate the presentation of policy decisions by providing a clearer narrative of the relative role of money in interaction with other economic and financial sector variables, including asset prices, and their impact on consumer prices.
Findings and analysis
- Monetary aggregates retain importance within the ECB’s strategy despite debates in theory and empirics.
- Exclusive emphasis on non-monetary indicators risks an incomplete assessment of economic conditions.
- Separating monetary analysis into an independent pillar is viewed as second-best compared to integration.
- A general-equilibrium inspired merger of the ECB’s economic and monetary pillars is advocated to:
- Better integrate monetary and non-monetary drivers of inflation and economic activity.
- Clarify the relative contributions of money, asset prices, and other financial variables to consumer prices.
- The practical quantitative contribution of monetary aggregates within the unified framework may be limited, but the analytical and communicative benefits are emphasized.
Policy implications and recommendations
- Move from a two-pillar presentation (separate economic and monetary analyses) toward an integrated, general-equilibrium informed framework.
- Use the integrated framework to:
- Provide a clearer narrative for policy decisions.
- Highlight the interaction between monetary aggregates and other economic and financial sector variables, including asset prices.
- Improve the assessment of likely impacts on consumer prices.