Key Issues for Monetary Policy: An ECB View
The ECB Must Provide a Foundation of Stability That Withstands The Forces of Structural Change
Jean-Claude Trichet is the president
of the European Central
Bank. He is the past governor of
the Banque de France. He is
alternate governor for the
International Monetary Fund
and member of the board of the
Bank for International
Settlements. He has held many
high-level positions in French government, including
head of the Treasury and governor of the Banque de
France. His international positions include deputy governor
of the IMF and World Bank, chairman of the
European Monetary Committee, board member of the
European Monetary Institute, and member of the
Governing Council of the European Central Bank. He is
an “Ingénieur Civil des Mines,” a graduate of the
Institut d’Etudes Politiques de Paris, and holds a
Master’s in economics. Also, he attended the Ecole
Nationale d’Administration.
The European single currency, the euro, has become a visible and successful token of Europeans’ drive towards unification. It was born in an era in which high-speed structural change tests the validity of economic models and defies searches for standard policy recipes. Like all central banks, the European Central Bank (ECB) must deal with uncertainty that derives not only from the timely identification of important disturbances but also imperfect knowledge of how such disturbances affect the economy. These problems are compounded by the likelihood that important and poorly understood structural changes accompany cyclical forces. Unification of Europe has brought about significant structural change, which has been amplified by the recent enlargement of the European Union. Under these conditions, independence of the ECB, a mandate of price stability, and clear rules of fiscal governance have been essential for the credibility of the euro. Thus, the ECB has quantified its target of price stability in a mediumterm framework. Like the US Federal Reserve, the ECB’s policy framework is comprehensive, and its decisions are transparent. Unlike the Fed, however, the ECB has an explicit, quantitative definition of price stability and performs a detailed and explicit crosscheck between its economic analysis and detailed monetary analysis. These differences notwithstanding, the similarities between the ECB and the Fed are more important.
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