The ECB’s Monetary Analysis Revisited
Thomas Harjes and
No 2008/171, IMF Working Papers from International Monetary Fund
Monetary aggregates continue to play an important role in the ECB's policy strategy. This paper revisits the case for money, surveying the ongoing theoretical and empirical debate. The key conclusion is that an exclusive focus on non-monetary factors alone may leave the ECB with an incomplete picture of the economy. However, treating monetary factors as a separate matter is a second-best solution. Instead, a general-equilibrium inspired analytical framework that merges the economic and monetary "pillars" of the ECB's policy strategy appears the most promising way forward. The role played by monetary aggregates in such unified framework may be rather limited. However, an integrated framework would facilitate the presentation of policy decisions by providing a clearer narrative of the relative role of money in the interaction with other economic and financial sector variables, including asset prices, and their impact on consumer prices.
Keywords: Demand for money; Inflation; Monetary aggregates; Banking; Monetary base; WP,interest rate,economic analysis,monetary policy,broad money (search for similar items in EconPapers)
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