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ECB Credibility and Transparency

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  • Petra M. Geraats

Abstract

This paper argues that ECB credibility in delivering price stability is being progressively eroded; this problem could be overcome by embracing greater transparency especially about the ECB's objectives, macroeconomic forecasts and decision-making. During the ECB's first decade, average inflation in the euro area has been low, but it has failed to meet the ECB's criterion of below but close to 2% over the medium term. Although this could be attributed to unanticipated shocks, the analysis in this paper points to some structural shortcomings. In particular, there has been an upward trend in medium and long term inflation expectations in the euro area, which have even reached over 2%, and the credibility of the ECB achieving price stability in the medium term has gradually eroded to critically low levels. In addition, there is evidence that medium and long term inflation expectations are negatively affected by the inflation experience of the euro area. However, this paper argues that these problems could be overcome embracing by greater transparency, especially about the ECB's objectives, macroeconomic forecasts and decision-making.

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File URL: http://ec.europa.eu/economy_finance/publications/publication12714_en.pdf
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Bibliographic Info

Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 330.

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Length: 33 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:euf:ecopap:0330

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Related research

Keywords: ECB; monetary policy; inflation expectations; Geraats;

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References

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  1. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  2. Carin van der Cruijsen & Maria Demertzis, 2005. "The Impact of Central Bank Transparency on Inflation Expectations," DNB Working Papers 031, Netherlands Central Bank, Research Department.
  3. Petra M. Geraats, 2006. "Transparency of Monetary Policy: Theory and Practice," CESifo Economic Studies, CESifo, vol. 52(1), pages 111-152, March.
  4. Bernard Laurens & Martin Sommer & Marco Arnone & Jean-François Segalotto, 2007. "Central Bank Autonomy," IMF Working Papers 07/88, International Monetary Fund.
  5. Eijffinger, Sylvester C.W. & Geraats, Petra M., 2006. "How transparent are central banks?," European Journal of Political Economy, Elsevier, vol. 22(1), pages 1-21, March.
  6. Ehrmann, Michael & Fratzscher, Marcel, 2007. "Explaining monetary policy in press conferences," Working Paper Series 0767, European Central Bank.
  7. Leitemo, Kai, 2003. " Targeting Inflation by Constant-Interest-Rate Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 609-26, August.
  8. Stephen Morris & Hyun Song Shin, 2005. "Central Bank Transparency and the Signal Value of Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2), pages 1-66.
  9. Otmar Issing, 1999. "The Eurosystem: Transparent andAccountable or 'Willem in Euroland'," Journal of Common Market Studies, Wiley Blackwell, vol. 37(3), pages 503-519, 09.
  10. W.H. Buiter, 1999. "Alice in Euroland," CEP Discussion Papers dp0423, Centre for Economic Performance, LSE.
  11. Georgios Chortareas & David Stasavage & Gabriel Sterne, 2002. "Does it pay to be transparent? international evidence form central bank forecasts," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 99-118.
  12. Geraats Petra M., 2005. "Transparency and Reputation: The Publication of Central Bank Forecasts," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-28, February.
  13. Carlos Bowles & Roberta Friz & Veronique Genre & Geoff Kenny & Aidan Meyler & Tuomas Rautanen, 2007. "The ECB survey of professional forecasters (SPF) – A review after eight years’ experience," Occasional Paper Series 59, European Central Bank.
  14. Ehrmann, Michael & Fratzscher, Marcel, 2005. "Communication and decision-making by central bank committees: different strategies, same effectiveness?," Working Paper Series 0488, European Central Bank.
  15. Hans Gersbach & Volker Hahn, 2009. "Voting Transparency in a Monetary Union," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 831-853, 08.
  16. Marco Arnone & Bernard J Laurens & Jean-Fran�ois Segalotto & Martin Sommer, 2009. "Central Bank Autonomy: Lessons from Global Trends," IMF Staff Papers, Palgrave Macmillan, vol. 56(2), pages 263-296, June.
  17. Petra Gerlach-Kristen, 2004. "Is the MPC's Voting Record Informative about Future UK Monetary Policy?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 299-313, 06.
  18. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
  19. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
  20. N. Nergiz Dincer & Barry Eichengreen, 2007. "Central Bank Transparency: Where, Why, and with What Effects?," NBER Working Papers 13003, National Bureau of Economic Research, Inc.
  21. Georgios Chortareas & David Stasavage & Gabriel Sterne, 2003. "Does monetary policy transparency reduce disinflation costs?," Manchester School, University of Manchester, vol. 71(5), pages 521-540, 09.
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Cited by:
  1. Klaus Schmidt-Hebbel, 2012. "Fiscal Institutions in Resource-Rich Economies: Lessons from Chile and Norway," Documentos de Trabajo 416, Instituto de Economia. Pontificia Universidad Católica de Chile..
  2. Zsolt Darvas & Valentina Kostyleva, 2011. "Fiscal and Monetary Institutions in Central, Eastern and South-Eastern European Countries," IEHAS Discussion Papers 1127, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  3. Zsolt Darvas & Valentina Kostyleva, 2011. "The fiscal and monetary institutions of CESEE countries," Working Papers 494, Bruegel.
  4. Klaus Schmidt-Hebbel, 2012. "Fiscal Policy for Commodity Exporting Countries: Chile's Experience," Documentos de Trabajo 415, Instituto de Economia. Pontificia Universidad Católica de Chile..

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