Monetary Policy – ECB and FED

Monetary PolicyECB, FED and Central Bank Of Ireland

How to measure money, The Monetary Base and central Banks balance sheet, Transmission Mechanisms of Monetary Policy, Monetay Policy Strategy and conduct, and Quantitative Easing.

In 1913, US federal reserves had 2 mandates:
• Price Stability or Low Inflation
• Low Unemployment
In EU, there was one mandate which is Price Stability. Mastricht Treety mandate was to have inflation rate below 2% (Low Inflation rate means high growth)

Money Theory: % change in money is partly affected by % change in prices and party by % change in GDP. For Industrial countries, Increase money by 5% could cause inflation to increase by 2% and output GDP to increase by 3%.

Central Banks conduct strategy argument that start with money and end with output (GDP). In between, there are Interest Rates, Inflation, Monetary Aggregates, etc. The two main sources for Monetary Policies are the European Central Bank ECB (www.ecb.int) and the US Federal reserve system FED (www.federalreserve.gov). The central banks main role is to secure financial stability.

Central Bank of Ireland follows the ECB Monetary policies and mandates. The ECB’s and Bank Of Ireland definition of monetary aggregates are based on a harmonised definition of the money-issuing sector and the money-holding sector as well as of harmonised categories of MFI liabilities.
M1: Currency in circulation + overnight deposits
M2: M1 + deposits with an agreed maturity up to 2 years + deposits redeemable at a period of notice up to 3 months.
M3: M2 + repurchase agreements + money market fund (MMF) shares/units + debt securities up to 2 years

Ireland made many policy mistakes and is paying a high price for correcting them. The corrections are painful yet unavoidable. The country has received unprecedented support from ECB to get out of the financial crisis that started in 2008. The Irish Economy is growing at the moment and inflation rates started to improve. My own view to the Irish economy to come out of the financial crisis is by investing in long term businesses that rise up the employment rate and reduce the inflation figures for the coming years.

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About Sultan

Senior Technology Architect with 10 years of experience in Europe, Asia, Africa, Australia, North and Latin America.
This entry was posted in Bank Of Ireland, ECB, Economics, FED, Monetary Policy. Bookmark the permalink.

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