The European Central Bank and the US Federal Reserve: These are two institutions that operate the two most important monetary policies in the world: the euro and the dollar. An essential function of a Central Bank is to regulate the evolution of money supply and interest rates, but one must not neglect its other functions such as acting as a currency lender of last resort and monitoring of the financial system.Here we will examine the functioning of these two central banks and the implications for monetary policies of both.
The European Central Bank, created by the political construction of Europe, has been assigned a primary objective (Article 105 of the Treaty of Maastricht): ‘Price stability and support of the general economic policies in the European Union.' Its mission is essentially that of controlling inflation, with a target of 2% on average for the entire euro area. The term 'price stability' is of low inflation and is not cumulative, since it is of less than two digits.
The European Central Bank's entire federal structure is organized around a Council of Governors, which aims to determine a monetary policy to be implemented within the Eurosystem (countries that have adopted the single currency system).These include determining the rates. The Board consists of 10 members of the Executive Board of the ECB and National Central Bank governors of the euro area. So it is a federal organization within Europe and so we encounter a major weakness of the ECB. Indeed, if the ECB decides on the establishment of such a monetary policy, it will be the national central banks that carry out the decisions: it may also be differences in implementation of policies.
Tags: The European Central Bank, US Federal Reserve, monetary policies, Council of Governors, National Central Bank
[...] This policy was established under the chairmanship of Alan Greenspan and was unanimously recognized as effective. The Fed knows the response times and channels of transmission.This is supported by the fact that the US is a land responsive to changes in interest rates. Indeed, the US household debt is primarily at variable rates, there may be a wealth effect due to the holding of shares, or a renegotiation of mortgages, while the European economy is less flexible. The ECB will therefore be of the medium term when compared the short term Fed. [...]
[...] Adjustments occur in less than a quarter in the United Kingdom and in over six months in Denmark.The ability of collective actions is limited. This is compounded by the fact that the EU budget is limited to of GDP, Europe cannot take over budgetary resources of defaulting states. Moreover, governments are not the real actors of economic policies in Europe. Links with other levers of monetary policies (policy mix) are insufficient, and we can note the problem of national implementation of policies decided at the EU level (which gives the final monetary policy and twelve fiscal policies). [...]
[...] This is to ‘maintain long-term growth of money and credit to the extent of the potential long-term growth of the economy to ensure in practice the objectives of full employment, stable prices and interest rates to moderate long-term.' The US Federal Reserve will therefore contribute to low inflation, but not only that, it also wants to focus on growth, allowing us to argue that the US objective is rather 'positive' when the objective of the ECB is rather 'negative'. Differences appeared quickly. [...]
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