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Workshop Setting interest rates at the ECB

Workshop Setting interest rates at the ECB. Prof. Dr. Olaf C.H.M. Sleijpen 11 May, 2012 Scope/Economics Conference 20 years Maastricht Treaty – A blessing for Europe?. Agenda. Introduction to ECB monetary policy making 12.15 to 12.45 Simulation of an ECB Governing Council meeting

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Workshop Setting interest rates at the ECB

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  1. WorkshopSetting interest rates at the ECB Prof. Dr. Olaf C.H.M. Sleijpen 11 May, 2012 Scope/Economics Conference 20 years Maastricht Treaty – A blessing for Europe?

  2. Agenda • Introduction to ECB monetary policy making • 12.15 to 12.45 • Simulation of an ECB Governing Council meeting • 12.45 introduction and preparation • 13.10 to 13.40 simulation • Evaluation • 13.40 to 13.45

  3. Price stability Article 105 of EU Treaty: The primary objective of the Eurosysten shall be to maintain price stability. Without prejudice to to this objective, the Eurosystem shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2. Definition of price stability: Price stability shall be defined as a year-on-year increase in the HICP for the euro area of below 2% and is to be maintained over the medium term. The Governing Council aims to maintain inflation rates at levels below, but close to 2% over the medium term.

  4. The monetary policy strategyof the ECB

  5. The monetary transmission process

  6. Inflationrate in the euro area

  7. The decision-making bodies of the ECB

  8. ECB interest rates andmoney market rates

  9. Monetary policy operations in wake of the crisis

  10. Development in keyeconomic indicators (GIIPS versus core euro area)

  11. Credit growthandglobal interest rates (% of GDP; %)

  12. Money growth, house pricesand stock markets (euro area; % change)

  13. Questions and discussion

  14. Assignment – simulation of a Governing Council meeting • Subgroups are requested to assess the appropriate monetary policy stance of the ECB for the euro area, based on the ECB’s objective and monetary policy strategy. • For this purpose, each subgroup represents a member of the Governing Council. • At the start of the simulation, the spokesperson of each subgroup is requested to give a 5 minute statement (maximum) on the appropriate monetary policy stance, advocated by the Governing Council member the subgroup represents. • The statement should follow the “two pillar” approach to monetary policy • The introduction by each Governing Council member will be followed by a discussion among the members, chaired by the “ECB President”. Hint: The introductory statement(s) of the ECB President, following the monthly meeting of the Governing Council, may serve as an example for the statements to be made.

  15. Economic analysis (industrial) production Leading indicators Development of GDP and underlying components Output gap Economic forecasts Consumer and producer confidence Price developments Wage developments Exchange rate developments Fiscal policy stance Inflationary expectations World trade/development of exports and imports Commodity and energy prices Monetary and financial analysis Development of monetary aggregates notably M3 Credit growth government private sector consumers Development of interest rates money market capital market Yield curve Stock market prices/other asset prices e.g. real estate Banking surveys e.g. credit standards Examples of data to be considered in thecontext of the monetary policy strategy Note that the Governing Council – in principle – only considers euro area data (no individual country information)

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