The Implications of Globalisation for the ECB Monetary Policy Strategy

93 Pages Posted: 23 Sep 2021 Last revised: 18 Nov 2021

See all articles by David Lodge

David Lodge

European Central Bank (ECB)

Mary Everett

Central Bank of Ireland

Olivier De Bandt

Banque de France

Georgios Georgiadis

European Central Bank (ECB)

Michele Ca' Zorzi

European Central Bank (ECB)

Povilas Lastauskas

Center for Excellence in Finance and Economic Research; Vilnius University

Juan Carluccio

Banque de France

Susana Parrága

Banco de España

Pietro Cova

Bank of Italy

Maria Grazia Attinasi

European Central Bank (ECB)

Mirco Balatti Mozzanica

European Central Bank (ECB)

Celestino Giron

European Central Bank (ECB)

Biswajit Banerjee

Národná banka Slovenska

Vanessa Gunnella

European Central Bank (ECB)

Ursel Baumann

European Central Bank (ECB)

Yannick Hemmerlé

De Nederlandsche Bank

Jean-Charles Bricongne

Banque de France

Axel Jochem

Deutsche Bundesbank

Francesco Chiacchio

European Central Bank (ECB)

Kristiina Karjanlahti

Bank of Finland

Ivan Kataryniuk

Banco de España

Davide Del Giudice

European Central Bank (ECB)

Iikka Korhonen

Bank of Finland - Institute for Economies in Transition (BOFIT)

Clara De Luigi

Oesterreichische Nationalbank (OeNB)

Markus Kühnlenz

Deutsche Bundesbank

Dimitra Dimitropoulou

Bank of Greece

Vincent Labhard

European Central Bank (ECB) - Directorate General Economics

Virginia Di Nino

European Central Bank (ECB)

Helena Le Mezo

European Central Bank (ECB)

Ettore Dorrucci

European Central Bank (ECB)

Eric Eichler

European Central Bank (ECB)

Nilsson Mattias

European Central Bank (ECB)

Martin Feldkircher

Oesterreichische Nationalbank (OeNB)

Chiara Osbat

European Central Bank (ECB)

Thomas Reininger

Österreichische Nationalbank

Sebastian Stumpner

University of Montreal - Department of Economics; Banque de France

Ilona Van Schaik

De Nederlandsche Bank

Martin Schmitz

European Central Bank (ECB)

Helmut Wacket

European Central Bank (ECB)

Roberta Serafini

European Central Bank (ECB)

Tina Zumer

European Central Bank (ECB)

Daniele Siena

Banque de France

Date Written: September, 2021

Abstract

This paper assesses how globalisation has shaped the economic environment in which the ECB operates and discusses whether this warrants adjustments to the monetary policy strategy. The paper first looks at how trade and financial integration have evolved since the last strategy review in 2003. It then examines the effects of these developments on global productivity growth, the natural interest rate (r*), inflation trends and monetary transmission. While trade globalisation initially boosted productivity growth, this effect may be waning as trade integration slows and market contestability promotes a winner-takes-all environment. The impact of globalisation on r* has been ambiguous: downward pressures, fuelled by global demand for safe assets and an increase in the propensity to save against a background of rising inequality, are counteracted by upward pressures, from the boost to global productivity associated with greater trade integration. Headline inflation rates have become more synchronised globally, largely because commodity prices are increasingly determined by global factors. Meanwhile, core inflation rates show a lower degree of commonality. Globalisation has made a rather modest contribution to the synchronised fall in trend inflation across countries and contributed only moderately to the reduction in the responsiveness of inflation to changes in activity. Regarding monetary transmission, globalisation has made the role of the exchange rate more complex by introducing new mechanisms through which it affects financial conditions, real activity and price dynamics. Against the background of this discussion, the paper then examines the implications for the ECB’s monetary policy strategy. In doing so, it asks two questions. How is the ECB’s economic and monetary analysis affected by globalisation? And how does globalisation influence the choice of the ECB’s monetary policy objective and instruments? ...

Keywords: Globalisation, inflation, monetary policy strategy, productivity, r*

JEL Classification: E58, F42, F44, F62, F65

Suggested Citation

Lodge, David and Everett, Mary and Bandt, Olivier De and Georgiadis, Georgios and Ca' Zorzi, Michele and Lastauskas, Povilas and Carluccio, Juan and Parrága, Susana and Cova, Pietro and Attinasi, Maria Grazia and Mozzanica, Mirco Balatti and Giron, Celestino and Banerjee, Biswajit and Gunnella, Vanessa and Baumann, Ursel and Hemmerlé, Yannick and Bricongne, Jean-Charles and Jochem, Axel and Chiacchio, Francesco and Karjanlahti, Kristiina and Kataryniuk, Ivan and Giudice, Davide Del and Korhonen, Iikka and Luigi, Clara De and Kühnlenz, Markus and Dimitropoulou, Dimitra and Labhard, Vincent and Nino, Virginia Di and Mezo, Helena Le and Dorrucci, Ettore and Eichler, Eric and Mattias, Nilsson and Feldkircher, Martin and Osbat, Chiara and Reininger, Thomas and Stumpner, Sebastian and Stumpner, Sebastian and Schaik, Ilona Van and Schmitz, Martin and Wacket, Helmut and Serafini, Roberta and Zumer, Tina and Siena, Daniele, The Implications of Globalisation for the ECB Monetary Policy Strategy (September, 2021). ECB Occasional Paper No. 2021263, Available at SSRN: https://ssrn.com/abstract=3928284 or http://dx.doi.org/10.2139/ssrn.3928284

David Lodge (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mary Everett

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Olivier De Bandt

Banque de France

Paris
France

Georgios Georgiadis

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Michele Ca' Zorzi

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Povilas Lastauskas

Center for Excellence in Finance and Economic Research ( email )

Totoriu g. 4
Vilnius, LT-01121
Lithuania

HOME PAGE: http://www.lb.lt/cefer

Vilnius University ( email )

Lithuania

Juan Carluccio

Banque de France

Paris
France

Susana Parrága

Banco de España

Alcala 50
Madrid 28014
Spain

Pietro Cova

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Maria Grazia Attinasi

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mirco Balatti Mozzanica

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Celestino Giron

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Biswajit Banerjee

Národná banka Slovenska

Bratislava
Slovakia

Vanessa Gunnella

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ursel Baumann

European Central Bank (ECB) ( email )

Sonnemannstrasse 20
Frankfurt am Main, D-60311
Germany

Yannick Hemmerlé

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Jean-Charles Bricongne

Banque de France ( email )

Paris
France

Axel Jochem

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Francesco Chiacchio

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Kristiina Karjanlahti

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Ivan Kataryniuk

Banco de España

Alcala 50
Madrid 28014
Spain

Davide Del Giudice

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Iikka Korhonen

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

P.O.Box 160
Helsinki 00101
Finland

Clara De Luigi

Oesterreichische Nationalbank (OeNB)

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

Markus Kühnlenz

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Dimitra Dimitropoulou

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Vincent Labhard

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Virginia Di Nino

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Helena Le Mezo

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ettore Dorrucci

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 13440 (Phone)
+44 69 1344 6000 (Fax)

Eric Eichler

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Nilsson Mattias

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Martin Feldkircher

Oesterreichische Nationalbank (OeNB)

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

Chiara Osbat

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6821 (Phone)
+49 69 1344 6000 (Fax)

Thomas Reininger

Österreichische Nationalbank ( email )

Wien 9, Otto Wagner Platz
Postfach 61
A-1011 Wien, 1090
Austria

Sebastian Stumpner

University of Montreal - Department of Economics ( email )

C.P. 6128, succursale Centre-Ville
Montreal, Quebec H3C 3J7
Canada

Banque de France ( email )

Paris
France

Ilona Van Schaik

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Martin Schmitz

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Helmut Wacket

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Roberta Serafini

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Tina Zumer

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Daniele Siena

Banque de France ( email )

Paris
France

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