The First Twenty Years of the European Central Bank: Monetary Policy

98 Pages Posted: 3 Jan 2019

See all articles by Philipp Hartmann

Philipp Hartmann

European Central Bank (ECB); Centre for Economic Policy Research (CEPR) - International Macroeconomics

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

Date Written: December 20, 2018

Abstract

On 1 June 2018 the ECB celebrated its 20th anniversary. This paper provides a comprehensive view of the ECB’s monetary policy over these two decades. The first section provides a chronological account of the macroeconomic and monetary policy developments in the euro area since the adoption of the euro in 1999, going through four cyclical phases “conditioning” ECB monetary policy. We describe the monetary policy decisions from the ECB’s perspective and against the background of its evolving monetary policy strategy and framework. We also highlight a number of the key critical issues that were the subject of debate. The second section contains a partial assessment. We first analyze the achievement of the price stability mandate and developments in the ECB’s credibility. Next, we investigate the ECB’s interest rate decisions through the lens of a simple empirical interest rate reaction function. This is appropriate until the ECB hits the zero-lower bound in 2013. Finally, we present the ECB’s framework for thinking about non-standard monetary policy measures and review the evidence on their effectiveness. One of the main themes of the paper is how ECB monetary policy responded to the challenges posed by the European twin crises and the subsequent slow economic recovery, making use of its relatively wide range of instruments, defining new ones where necessary and developing the strategic underpinnings of its policy framework.

Keywords: European Central Bank, monetary policy, European Economic and Monetary Union, euro area economy, inflation, crisis, non-standard measures, zero-lower bound

JEL Classification: E52, E31, E32, E42, N14, G01

Suggested Citation

Hartmann, Philipp and Smets, Frank, The First Twenty Years of the European Central Bank: Monetary Policy (December 20, 2018). ECB Working Paper No. 2219, Available at SSRN: https://ssrn.com/abstract=3309645

Philipp Hartmann (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
(49 69) 1344 7356 (Phone)
(49 69) 1344 8553 (Fax)

Centre for Economic Policy Research (CEPR) - International Macroeconomics

London
United Kingdom

Frank Smets

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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