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Sources

ECB official website sources

12.01.2014

ECB monetary policy

ECB monetary policy instruments

ECB: Monetary policy and monetary policy instruments https://www.ecb.europa.eu/mopo/intro/operational/html/index.en.html, zuletzt gepruft am 01.01.2015

ECB: Lithuania (2015). Online verfügbar unter https://www.ecb.europa.eu/euro/changeover/lithuania/html/index.en.html, zuletzt geprüft am 01.01.2015.

ECB: FACT slides on monetary policy, (01.2014)

https://www.ecb.europa.eu/ecb/educational/facts/html/index.en.html

ECB: Why has the ECB introduced a negative interest rate? Online verfügbar unter https://www.ecb.europa.eu/home/html/faqinterestrates.en.html, zuletzt geprüft am 01.01.2015.

Eurostat | News release: http://ec.europa.eu/eurostat/documents/2995521/6455292/2-07012015-BP-EN.pdf/7a179764-787e-4a10-a72b-0abde719ee44

ECB: Monetary Policy. Online verfügbar unter https://www.ecb.europa.eu/mopo/html/index.en.html, zuletzt geprüft am 01.01.2015.

ECB: Home page: https://www.ecb.europa.eu/home/html/index.en.html

Treaty on the Functioning of the European Union, Article 127(2);

EUR-Lex - C2012/326/01 - EN - EUR-Lex. Online verfügbar unter http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2012.326.01.0001.01.ENG, zuletzt geprüft am 02.01.2015.

ECB: Press release on conventional and unconventional monetary policy: http://www.ecb.europa.eu/press/key/date/2009/html/sp090428.en.html

Primary objective

Implementation

  • Open market operations
  • Standing facilities
  • Minimum reserved requirement for credit institutions

What does monetary policy do?

Decisions

Standing facilities

generally higher than market rates

Other internet sources

ECB monetary policy strategy

www.frbsf.org/education/files/monetary_policy.jpg

generally lower than market rates

Eurozone falls into deflation for first time since October 2009 - FT.com. Online verfügbar unter http://www.ft.com/intl/cms/s/c65f18b6-9652-11e4-a40b-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fc65f18b6-9652-11e4-a40b-00144feabdc0.html%3Fsiteedition%3Dintl&siteedition=intl&_i_referer=#axzz3OAwC5e8M, zuletzt geprüft am 07.01.2015.

ECB logo downloaded from Wikimedia: http://upload.wikimedia.org/wikipedia/commons/c/cb/Logo_European_Central_Bank.svg

What does the ECB decision mean for me? Draghi's video conference embedded from Youtube (June, 2014)

ECB history: http://en.wikipedia.org/wiki/European_Central_Bank

https://www.ecb.europa.eu/home/html/index.en.html

Journals

See post-Lehman

EONIA (i.e. the euro interbank overnight money market rate)

- Why negative?

Joyce, Michael; Miles, David; Scott, Andrew; Vayanos, Dimitri (2012): Quantitative Easing and Unconventional Monetary Policy - an Introduction*. In: The Economic Journal 122 (564), S. F271. DOI: 10.1111/j.1468-0297.2012.02551.x.

Giannone, Domenico; Lenza, Michele; Pill, Huw; Reichlin, Lucrezia (2010): Non-standard monetary policy measures and monetary developments. London: Centre for Economic Policy Research (Discussion paper series / Centre for Economic Policy Research International macroeconomics, 8125).

The Eurozone

Explaining the current interest rates

"Negative interest rates are usually associated with unconventional monetary policies"

Characteristics

  • The ECB influences inflation by setting interest rates
  • Euro area inflation is expected to remain considerably low
  • Thus, the ECB has lowered all three rates
  • Punishing savers, rewarding borrowers
  • Can banks avoid negative deposit rates?
  • Resistance faced by the Deutsche Bundesbank

Draghi's response to Weidman

"Interest rates will go up again, once growth comes back"

ECB: Why has the ECB introduced a negative interest rate? Online verfügbar unter https://www.ecb.europa.eu/home/html/faqinterestrates.en.html, zuletzt geprüft am 01.01.2015.

What does the ECB decision mean for me? - 5 June 2014. Online verfügbar unter zuletzt geprüft am 01.01.2015.

  • centralised monetary policy-making - role of the ECB
  • decentralised, albeit closely coordinated, fiscal policy-making
  • arrangements for fiscal policies at EU level
  • independence of the ECB from other EU political institutions
  • Article 127 of the TFEU assigns the implementation of the monetary policy in the Eurozone to the Eurosystem.

List of content

Tasks of the Eurosystem

  • Historical background to the ECB
  • Terminology (ESCB, ECB, Eurosystem)
  • Monetary policy of the ECB
  • Monetary policy instruments
  • Inflationary developments in the Eurozone
  • Standing facilities
  • ECB after 2008 - response to the crisis
  • Plausible future decision -QE
  • Welcome Lithuania - the transition process
  • definition and implementation of monetary policy
  • conduct of foreign exchange operations (e.g with FED)
  • management of official foreign reserves of Member States
  • Banknotes
  • Statistics
  • Financial Stability and Supervision
  • International and European cooperation

Treaty on the Functioning of the European Union, Article 127(2);

EUR-Lex - C2012/326/01 - EN - EUR-Lex. Online verfügbar unter http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2012.326.01.0001.01.ENG, zuletzt geprüft am 02.01.2015.

Monetary policy of the European Central Bank (ECB)

Inflationary development in the Eurozone

(Harmonised indices of consumer prices)

Data valid until October 2014

ECB: Monetary Policy. Online verfügbar unter https://www.ecb.europa.eu/mopo/html/index.en.html, zuletzt geprüft am 01.01.2015.

Deflation is back

Quantitative easing

6.3 %

  • plunging oil price => low energy price
  • decrease of in energy prices
  • adds pressure on the ECB to stimulate the economy
  • if energy prices are excluded from the estimation, the inflation would remain all the same at

0.6 %

  • targeting quantity variables rather than interest rates
  • purchase of sovereign bonds
  • substantial increase in the balance sheet
  • increase in the monetary base
  • increase the flow of money in the system
  • seen as a last resort after minimal rates prove unsuccessful

Eurostat | News release: http://ec.europa.eu/eurostat/documents/2995521/6455292/2-07012015-BP-EN.pdf/7a179764-787e-4a10-a72b-0abde719ee44

Eurostat | News release: http://ec.europa.eu/eurostat/documents/2995521/6455292/2-07012015-BP-EN.pdf/7a179764-787e-4a10-a72b-0abde719ee44

Eurozone falls into deflation for first time since October 2009 - FT.com. Online verfügbar unter http://www.ft.com/intl/cms/s/c65f18b6-9652-11e4-a40b-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fc65f18b6-9652-11e4-a40b-00144feabdc0.html%3Fsiteedition%3Dintl&siteedition=intl&_i_referer=#axzz3OAwC5e8M, zuletzt geprüft am 07.01.2015.

Conventional monetary policy

  • affecting short term interest rates through open market operations
  • steering the level of the key interest rates

Joyce, Michael; Miles, David; Scott, Andrew; Vayanos, Dimitri (2012): Quantitative Easing and Unconventional Monetary Policy - an Introduction*. In: The Economic Journal 122 (564), S. F271. DOI: 10.1111/j.1468-0297.2012.02551.x.

Unconventional monetary policy

  • purchase of government securities and bonds from the banking sector
  • introduction of negative rates
  • risk of hindering functionality

ECB: Press release on conventional and unconventional monetary policy: http://www.ecb.europa.eu/press/key/date/2009/html/sp090428.en.html

Historical background

Interest rate

Introduction of euro

The Foundation

In April 2011, the ECB raised interest rates for the first time since 2008 from 1% to 1.25%,[9] with a further increase to 1.50% in July 2011.[10] However, in 2012–2013 the ECB sharply lowered interest rates to encourage economic growth, reaching the historically low 0.25% in November 2013.[1] Soon after the rates were cut to 0.15%, then on 4 September 2014 the central bank reduced the rates by two thirds from 0.15% to 0.05%, the lowest rates on record.[11]

The European Monetary Institute (EMI) is founded in Frankfurt to coordinate the monetary policies of the national central banks across the European Union

The euro is introduced as the single currency of the euro area, composed back than of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

06.1998

12.2009

4.2011- 09.2014

01.1999

01.1994

The establishment

Becoming of an EU institution

http://upload.wikimedia.org/wikipedia/commons/c/cb/Logo_European_Central_Bank.svg

On 1 December 2009, the Treaty of Lisbon entered into force, ECB according to the article 13 of TEU, gained official status of an EU institution.

The ECB is established in Frankfurt, taking over from the European Monetary Institute (EMI) in the final preparations for the start of Stage Three of Economic and Monetary Union (EMU).

assets.forexlive.com/wp-content/uploads/2014/02/ECB-interest-rate-06-02-2014.png

Dan Bolocan

Emiljo Jazxhi

Welcome Lithuania

ECB's response to the 2008 crisis

Laukiamas

  • 1 January 2015
  • Euro replaces the litas: fixed exchange rate of €1= LTL 3.45280

ECB starts providing extra liquidity

Purchase programme for covered bonds

Support bank lending and money market activities

Guidance on future interest rates

Shortage of $ liquidity

FED swap agreement

attempt to revive an important market segment

for the refinancing of banks

  • 2 longer term refinancing operations
  • reduce reserve ratio

10.2008

05.2010

08-09.2012

Euro introduction

06.2009

08.2007

11.2011

07.2013

Extraordinary liquidity measures

Outright Monetary Transactions

Securities Markets Programme

Deadline for exchanging litas banknotes at the remaining commercial banks

EU Council approved Lithuania’s admission to euro area.

Euro banknotes and coins started circulating and bank accounts were converted into euro.

01/10/2014

16/01/2015

  • terminate SMP

weekly refinancing operations with a fixed-rate tender procedure

  • addressing malfunctioning securities markets
  • restore the transmission mechanism

  • OMT in secondary sovereign markets

31/12/2015

01/01/2015

23/07/2014

Euro banknotes and coins become sole legal tender.

Transfer of euro coins from Lietuvos bankas to commercial banks started.

ECB: FACT slides on monetary policy, (01.2014)

https://www.ecb.europa.eu/ecb/educational/facts/html/index.en.html

ECB: Lithuania (2015). Online verfügbar unter https://www.ecb.europa.eu/euro/changeover/lithuania/html/index.en.html, zuletzt geprüft am 01.01.2015.

Giannone, Domenico; Lenza, Michele; Pill, Huw; Reichlin, Lucrezia (2010): Non-standard monetary policy measures and monetary developments. London: Centre for Economic Policy Research (Discussion paper series / Centre for Economic Policy Research International macroeconomics, 8125).

Changes in the Balance Sheet

EONIA (i.e. the euro interbank overnight money market rate)

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