1999年-ECB欧洲央行_Euro_area_monetary_aggregates_and_their_role_in_the_Eurosystems_monetary_policy_strategy_18页_190kb

Summary of Euro Area Monetary Aggregates and Their Role in the Eurosystem's Monetary Policy Strategy

Core Content

The Eurosystem, comprising the European Central Bank (ECB) and national central banks (NCBs) of euro area Member States, aims to maintain price stability as its primary objective. Monetary aggregates are used as an important tool to monitor and predict price developments, particularly in the medium to long term. These aggregates are categorized into narrow (M1), intermediate (M2), and broad (M3) based on the degree of moneyness and liquidity of their components.

Monetary aggregates are defined as the sum of currency in circulation and liabilities of financial institutions that have a high degree of liquidity. The Eurosystem has chosen M3 as a key indicator for monetary policy due to its greater stability and better leading indicator properties compared to narrower aggregates. M3 is considered more reliable in predicting future inflation and is used as a reference value for the ECB's monetary policy strategy.

Main Points

• Purpose of Monetary Aggregates:

  • Provide insight into future price developments.
  • Help assess the state of the financial system and broader economy.
  • Reflect the relationship between money, real activity, interest rates, and prices.

• Monetary Policy Strategy:

  • The Eurosystem focuses on broad money (M3) for medium-term inflation monitoring.
  • The Governing Council of the ECB announced a reference value for M3 growth in December 1998.
  • M3 is more stable and informative than narrow aggregates, though it is less controllable in the short term.

• Monetary Financial Institutions (MFIs):

  • MFIs are the core of the monetary system and include central banks, credit institutions, and money market funds.
  • A harmonised definition of MFI liabilities is used to ensure consistency across the euro area.
  • The definition of M3 includes a wide range of assets such as overnight deposits, short-term deposits, repurchase agreements, and money market instruments.

• Components of M3 (based on December 1998 data):

  • Overnight deposits: 33%
  • Deposits with agreed maturity up to 2 years: 20%
  • Deposits redeemable at notice up to 3 months: 28%
  • Currency in circulation: 7%
  • Money market fund shares/units and money market paper: 7%
  • Repurchase agreements: 4%
  • Debt securities up to 2 years: 2%

Macroeconomic and Microeconomic Criteria

• Microeconomic Perspective:

  • Money serves as a medium of exchange, unit of account, and store of value.
  • The degree of moneyness of an asset is determined by its liquidity and ability to be used for transactions.

• Macroeconomic Perspective:

  • Stability: Broad aggregates (M3) show a more stable relationship with price levels and real activity than narrow ones (M1).
  • Leading Indicator Properties: M3 provides better predictive power for future inflation.
  • Controllability: Narrow aggregates (M1) are more responsive to changes in short-term interest rates, making them easier to control in the short run.

Historical Developments and Trends

• Since 1999, monetary aggregates for the euro area are based on consolidated balance sheets of the MFI sector.
• M3 growth has slowed down since 1990, contributing to lower inflation.
• M3 velocity (ratio of nominal GDP to M3) has shown a downward trend over the past two decades, indicating a decline in the speed of money circulation.
• The velocity was temporarily distorted between mid-1992 and mid-1995, influenced by exchange rate crises, interest rate changes, and taxation reforms.
• Empirical analysis supports the long-run stability of M3 and M2, but not M1.

Role of Central Banks

• Central banks have a monopoly on base money (currency and central bank deposits).
• They influence the supply of base money and short-term interest rates, which in turn affect monetary aggregates.
• M3 is considered a better indicator of future price movements due to its broad composition and liquidity.

Conclusion

Monetary aggregates, especially M3, are essential for the Eurosystem's monetary policy. They provide a stable and informative measure of money supply and help in assessing inflation risks. The harmonisation of statistical definitions and the monitoring of M3 enable the ECB and NCBs to better understand and predict economic and price developments. While short-term fluctuations may distort the relationship between money and prices, long-term trends support the use of M3 as a reliable indicator for price stability.