IDEAS home Printed from
   My bibliography  Save this article

Efficiency and Transparency of the Monetary Policy Strategy of the ESCB


  • Peter Brandner


  • Helene Schuberth


The Treaty of Maastricht specified the goals for monetary policy: According to Art. 105(1), the primary objective of the European System of Central Banks (ESCB) is to maintain price stability. However, the Treaty also stipulates that, without prejudice to the objective of price stability, the ESCB is to support, above all, a high level of employment. This can be interpreted to mean that policy makers assigned the ESCB the tasks to maintain price stability and to stabilise output across business cycles. In October 1998, the ESCB announced its monetary policy strategy, i.e., a framework for policy decisions that is deemed appropriate to achieve these goals. Within this strategy, money is given a prominent role: the ESCB published a reference value for the broad monetary aggregate M3 that is designed to be consistent with, and serve the achievement of price stability. Furthermore, a broadly based assessment of the outlook for future price developments and the risks to price stability in the euro area will play a major role in the ESCB's strategy This strategy is neither a money supply targeting, nor an inflation targeting strategy. Contrary to the strategy of the Deutsche Bundesbank, the ESCB clearly states that it will not respond automatically to deviations of current money growth from the announced reference value. Unlike in the case of inflation targeting, it will publish neither its inflation forecast nor an explicit inflation target. The present article discusses whether the monetary strategy of the ESCB is optimal, i.e., whether it is efficient and transparent. It is argued that the strategy has the potential of efficiency, of fulfilling the goals of monetary policy in an optimal way, if the ESCB follows flexible inflation targeting in practice. Money supply targeting is considered inappropriate, since there is insecurity about whether important preconditions for the appropriateness of money supply targeting, such as stability and controllability of money demand, are fulfilled in the Monetary Union. An increasingly important prerequisite for the optimality of a strategy is transparency. Increased transparency makes the central bank's reputation more sensitive to its actions and induces the central bank to gear its policy to come closer to that with the greatest social benefit. Transparency is crucial for accountability. The strategy of the ESCB lacks full transparency. Publishing conditional inflation forecasts would give the public the option to monitor and evaluate the central bank's policy and to assess its coincidence with the monetary policy goals assigned to the ESCB.

Suggested Citation

  • Peter Brandner & Helene Schuberth, 1999. "Efficiency and Transparency of the Monetary Policy Strategy of the ESCB," WIFO Monatsberichte (monthly reports), WIFO, vol. 72(1), pages 61-73, January.
  • Handle: RePEc:wfo:monber:y:1999:i:1:p:61-73

    Download full text from publisher

    File URL:
    File Function: Abstract
    Download Restriction: Payment required

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Bernanke, Ben S. & Mihov, Ilian, 1997. "What does the Bundesbank target?," European Economic Review, Elsevier, vol. 41(6), pages 1025-1053, June.
    Full references (including those not matched with items on IDEAS)


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wfo:monber:y:1999:i:1:p:61-73. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ilse Schulz) or (Marina Grazioli). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.