Monetary policy strategy: Effectiveness and communication. The case of the ECB

Abstract

THE AUTHOR OF THIS ARTICLE ANALYZES THE MONETARY POLICY STRATEGY DESIGNED BY THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK AT THE END OF 1998, AND ORIENTED TOWARD THE HIGH-PRIORITY OBJECTIVE OF PRICE STABILITY. THE QUANTIFICATION OF AN INFLATION OBJECTIVE FOR THE EURO AREA WITHIN A WIDE RANGE OF VARIABILITY SUPPOSES THAT GROWING RESPONSIBILITY HAS BEEN ASSUMED IN TERMS OF THE LEVEL OF PRECISION IN THE ANNOUNCED OBJECTIVE. THE INDEPENDENCE OF THIS MONETARY INSTITUTION SHOULD BE CONSIDERED AS CLOSELY RELATED TO THE MATTER OF RESPONSIBILITY. WHILE THE CLEAR, PRECISE COMMUNICATION OF AN OBJETIVE IS A CONSTITUTIVE ELEMENT IN ANY MONETARY POLICY STRATEGY, CERTAIN BALANCES BETWEEN THE DETAILED INFORMATION ON EACH FUTURE ACTION AND THE PUBLICATION OF A GENERAL APPRAISAL OF INFLATIONARY TENSIONS CAN IMPOSE SOME RESTRICTIONS ON COMMUNICATION. NONETHELESS, AT THE SAME TIME THAT IT IS ASSUMED THAT THE CENTRAL BANK'S INDEPENDENCE HAS BEEN INTERPRETED AS AN ELEMENT OF THE PERFECTION OF THE DEMOCRATIC SYSTEM, THE IMPORTANCE OF ESTABLISHING ONGOING, CLEAR COMMUNICATION WITH REGARD TO THE OBJECTIVE IS EMPHASIZED, SO THAT EXPECTATIONS OF AGENTS WILL BE CONSISTENT WITH THE MONETARY POLICY STRATEGY.