The new monetary policy strategy of the European Central Bank – continuity and change

Konrad Szeląg

doi:10.26354/bb.3.4.85.2021

Published : 2022-02-04

Vol. 85 No. 4 (2021)

The new monetary policy strategy of the European Central Bank – continuity and change

Konrad Szeląg

https://orcid.org/0000-0002-0692-7910

DOI: https://doi.org/10.26354/bb.3.4.85.2021

Abstract

The ECB's original monetary policy strategy was adopted in 1998 and updated in 2003. Since then, there have been several important developments and shocks experienced by the European economy (financial and economic crises, periods of very low inflation and unconventional monetary policy, COVID-19 pandemic, etc.). Moreover, in the meantime, climate change has become an issue of growing importance in the EU. All those issues have prompted a review and update of the ECB’s strategy. The new strategy was published in July 2021. This article focuses on several new elements of the ECB’s strategy. The first one is the issue of the costs of living in private homes (owner-occupied housing – OOH) and their planned integration into the coverage of the ECB’s inflation index (HICP). This is aimed at improving cross-country comparability as well as the representativeness of the HICP, as OOH costs represent an important share of household consumption. The second element is climate change and its economic consequences, which are to be taken into account when making monetary policy decisions by the Governing Council. Different views, pros and cons, advantages and disadvantages have been presented with regard to the above issues. The last part of the article provides some concluding remarks and recommendations.

Keywords:

strategy, inflation, central bank, climate change, stress test, owner-occupied housing, monetary policy

JEL Codes

E58, Q54, E52

Most read articles by the same author(s)

Elemér Terták, Konrad Szeląg, The Financial Crisis and the Reform of Deposit Guarantee Schemes in the EU , Safe Bank: Vol. 41 No. 2 (2010): Bezpieczny Bank/Safe Bank

Details

References

Statistics

Authors

Download files

pdf (Język Polski)
pdf.eng

Citation rules

Szeląg, K. (2022). The new monetary policy strategy of the European Central Bank – continuity and change. Safe Bank, 85(4), 56–78. https://doi.org/10.26354/bb.3.4.85.2021

Altmetric indicators

Cited by / Share

Licence

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

References

Albidgren, K., Kuchler, A. (2019), “Revisiting the inflation perception conundrum”, Danmarks Nationalbank, Working Paper, nr 144, listopad 2019.

Allen, T., Dees, S., Boissinot, J., Caicedo Graciano, C.M., Chouard, V., Clerc, L., de Gaye, A., Devulder, A., Diot, S., Lisack, E., Pegoraro, F., Rabaté, M., Svartzman, R. and Vernet, L. (2020), “Climate-related scenarios for financial stability assessment: an application to France”, Banque de France, Working Paper, nr 774, lipiec 2020.

Alogoskoufis S., Dunz, N., Emambakhsh, T., Hennig, T., Kaijser, M., Kouratzoglou, Ch., Muñoz, M. A., Parisi, L., Salleo, C. (2021), “ECB economy-wide climate stress test. Methodology and results”, Europejski Bank Centralny, Occasional Paper, nr 281, wrzesień 2021.

Annicchiarico, B., Di Dio, F. (2015), “Environmental policy and macroeconomic dynamics in a new Keynesian model”, Journal of Environmental Economics and Management, tom 69, styczeń 2015.

Aucremanne, L., Collin, M., Stragier, T. (2007), “Assessing the gap between observed and perceived inflation in the euro area: is the credibility of the HICP at stake?”, Banque Nationale de Belgique, Working Paper Research, nr 112, kwiecień 2007.

Bamber, J. L., Oppenheimer, M., Kopp, R. E., Aspinall, W. P., Cooke, R. M. (2019), “Ice sheet contributions to future sea-level rise from structured expert judgment”, Proceedings of the National Academy of Sciences of the United States of America (PNAS), tom 166, nr 23, czerwiec 2019.

Batten, S. (2018), “Climate change and the macro-economy: a critical review”, Bank of England, Staff Working Paper, nr 706, styczeń 2018.

Benmir, G., Roman, J. (2020), “Policy interactions and the transition to clean technology”, London School of Economics and Political Science, Centre for Climate Change Economics and Policy, Working Paper, nr368 / Grantham Research Institute on Climate Change and the Environment, Working Paper, nr 337, kwiecień 2020.

Blanchard, O., Dell’Ariccia, G., Mauro, P. (2010), “Rethinking macroeconomic policy”, International Monetary Fund, IMF Staff Position Note, SPN/10/03, luty 2010.

Bonatti, L., Fracasso, A. (2021), “Including owner-occupied housing costs in the HICP: Some technical and policy remarks” [w:] “Inflation measurement: Role of owner-occupied housing costs”, Parliament Europejski, listopad 2021.

Boneva L., Ferrucci, G., Mongelli, F. P. (2021), “To be or not to be “green”: how can monetary policy react to climate change?”, Europejski Bank Centralny, Occasional Paper, nr 285, listopad 2021.

Brand C., Bielecki, M., Penalver A. (eds.) (2018), “The natural rate of interest: estimates, drivers, and challenges to monetary policy”, Europejski Bank Centralny, Occasional Paper, nr 217, grudzień 2018.

Bundesbank (2021), “The Eurosystem’s monetary policy strategy”, Deutsche Bundesbank, Monthly Report, wrzesień 2021.

Catalano, M., Forni, L. Pezzolla, E. (2020), “Climate-change adaptation: The role of fiscal policy”, Resource and Energy Economics, tom 59, luty 2020.

Dany-Knedlik, G., Papadia, A. (2021), “Owner-occupied housing costs and monetary policy: Goals and challenges for the

euro area” [w:] “Inflation measurement: Role of owner-occupied housing costs”, Parliament Europejski, listopad 2021.

Del Giovane, P., Fabiani, S., Sabbatini, R. (2009), “What’s behind ‘inflation perceptions’? A survey-based analysis of Italian consumers”, Giornale degli Economisti e Annali di Economia, Nuova Serie, tom 68, nr 1.

Dietz, S., Stern, N. (2015), “Endogenous Growth, Convexity of Damage and Climate Risk: How Nordhaus’ Framework Supports Deep Cuts in Carbon Emissions”, The Economic Journal, tom 125, nr 583.

Dikau S., Volz U. (2021), “Central bank mandates, sustainability objectives and the promotion of green finance”, Ecological Economics, tom 184, czerwiec 2021.

Dӧhring, B., Mordonu, A. (2007), “What drives inflation perceptions? A dynamic panel data analysis”, Komisja Europejska, European Economy – Economic Papers, nr 284, lipiec 2007.

Duisenberg, W. F. (1998), “The ESCB's stability-oriented monetary policy strategy”, przemówienie w Institute of European Affairs, Dublin, 10 listopada 1998.

EBC (1998), “A stability-oriented monetary policy strategy for the ESCB”, Europejski Bank Centralny, komunikat prasowy, 13 października 1998.

EBC (2000), “The two pillars of the ECB’s monetary policy strategy”, Europejski Bank Centralny, Monthly Bulletin, listopad 2000.

EBC (2001), “The monetary policy of the ECB”, Europejski Bank Centralny, Frankfurt n. Menem, sierpień 2001.

EBC (2003), “The outcome of the ECB’s evaluation of its monetary policy strategy”, Europejski Bank Centralny, Monthly Bulletin, czerwiec 2003.

EBC (2020), “ECB to accept sustainability-linked bonds as collateral”, Europejski Bank Centralny, komunikat prasowy, 22 września 2020.

EBC (2021a), “ECB sets up climate change centre”, Europejski Bank Centralny, komunikat prasowy, 25 stycznia 2021.

EBC (2021b), “Eurosystem agrees on common stance for climate change-related sustainable investments in non-monetary policy portfolios”, Europejski Bank Centralny, komunikat prasowy, 4 lutego 2021.

EBC (2021c), “An overview of the ECB’s monetary policy strategy”, Europejski Bank Centralny, lipiec 2021.

EBC (2021d), “ECB presents action plan to include climate change considerations in its monetary policy strategy”, Europejski Bank Centralny, komunikat prasowy, 8 lipca 2021.

EBC (2021e), “Inflation measurement and its assessment in the ECB’s monetary policy strategy review”, Europejski Bank Centralny, Occasional Paper, nr265, wrzesień 2021.

EBC (2021f), “Climate change and monetary policy in the euro area”, Europejski Bank Centralny, Occasional Paper, nr 271, wrzesień 2021.

EBC (2021g), “Climate risk stress test. SSM stress test 2022”, Europejski Bank Centralny, październik 2021.

EBC (2021h), “Single Supervisory Mechanism”, Europejski Bank Centralny, https://www.bankingsupervision.europa.eu

/about/thessm/html/index.en.html (dostęp 30 grudnia 2021).

EIW (1997a), “The single monetary policy in stage three: Specification of the operational framework”, Europejski Instytut Walutowy, styczeń 1997.

EIW (1997b), “The single monetary policy in stage three: Elements of the monetary policy strategy of the ESCB”, Europejski Instytut Walutowy, luty 1997.

Ens, E., Johnston, C. (2020), “Scenario analysis and the economic and financial risks from climate change”, Bank of Canada, Staff Discussion Paper, 2020-3, maj 2020.

Eurostat (2017), “Technical Manual on Owner-Occupied Housing and House Price Indices”, Komisja Europejska / Eurostat.

Ferrari A., Nispi Landi V. (2020), “Whatever it takes to save the planet? Central banks and unconventional green policies”, Europejski Bank Centralny, Working Paper, nr 2500, grudzień 2020.

Ferrari M., Pagliari, M. (2021), “No country is an island: international cooperation and climate change”, Europejski Bank Centralny, Working Paper, nr 2568, czerwiec 2021.

Gros, D., Shamsfakhr, F. (2021), “Housing and the cost of living” [w:] “Inflation measurement: Role of owner-occupied housing costs”, Parliament Europejski, listopad 2021.

Heal, G., Park, J. (2016), “Temperature stress and the direct impact of climate change: a review of an emerging literature”, Review of Environmental Economics and Policy, tom 10, nr 2, sierpień 2016.

Heipertz, M., Nickel, C. (2008), “Climate change brings stormy days: case studies on the impact of extreme weather events on public finances” [in:] Banca d’Italia, Public Finance Workshop on “Fiscal Sustainability: Analytical Developments and Emerging Policy Issues”, kwiecień 2008.

Hsiang, S., Kopp, R., Jina, A., Rising, J., Delgado, M., Mohan, S., Rasmussen, D.J., Muir-Wood, R., Wilson, P., Oppenheimer, M., Larsen, K., Houser, T. (2017), “Estimating economic damage from climate change in the United States”, Science, tom 356, nr 6345, czerwiec 2017.

Issing O. (ed.) (2003), “Background studies for the ECB’s evaluation of its monetary policy strategy”, Europejski Bank Centralny, listopad 2003.

Kahn, M. E., Mohaddes, K., Ng, R. N. C., Pesaran, H., Raissi, M., Yang, J-C. (2019 and 2021), “Long-term macroeconomic effects of climate change: A cross-country analysis”, National Bureau of Economic Research, NBER Working Paper, nr 26167, sierpień 2019 / Energy Economics, tom 104, grudzień 2021.

Komisja Europejska (2013), Commission Regulation (EU) No. 93/2013 of 1 February 2013 laying down detailed rules for the implementation of Council Regulation (EC) No. 2494/95 concerning harmonised indices of consumer prices, as regards establishing owner-occupied housing price indices, Dziennik Urzędowy UE nr L 33, 2 lutego 2013.

Komisja Europejska (2018), “Report from the Commission to the European Parliament and the Council on the suitability of the owner-occupied housing (OOH) price index for integration into the harmonised index of consumer prices (HICP) coverage”, Komisja Europejska, COM/2018/768, 29 listopada 2018.

Komisja Europejska (2019), “Sustainability-related disclosure in the financial services sector”, Komisja Europejska, https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/sustainability-related-disclosure-financial-services-sector_en (dostęp 30 grudnia 2021).

Komisja Europejska (2020), “EU taxonomy for sustainable activities”, Komisja Europejska, https://ec.europa.eu/info/business

-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_en (dostęp 30 grudnia 2021).

Komisja Europejska (2021), “Corporate sustainability reporting”, Komisja Europejska, https://ec.europa.eu/info/business-eco

nomy-euro/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en (dostęp 30 grudnia 2021).

Letta, M., Tol, R. S. J. (2019), “Weather, climate and total factor productivity”, Environmental and Resource Economics, tom 73, nr 1, maj 2019.

Lis, E., Nickel, C. (2010), “The impact of extreme weather events on budget balances”, International Tax and Public Finance, tom 17, sierpień 2010.

Melecky, M., Raddatz, C. (2011), “How do governments respond after catastrophes? Natural-disaster shocks and the fiscal stance”, World Bank, Policy Research Working Paper, nr 5564, luty 2011.

Nordhaus, W. D. (2017), “Revisiting the social cost of carbon”, Proceedings of the National Academy of Sciences of the United States of America (PNAS), tom 114, nr 7, luty 2017.

Parker, M. (2018), “The impact of disasters on inflation”, Economics of Disasters and Climate Change, tom 2, nr 1, listopad 2017.

Parlament Europejski i Rada (2016), Rozporządzenie Parlamentu Europejskiego i Rady (UE) 2016/792 z dnia 11 maja 2016 r. w sprawie zharmonizowanych wskaźników cen konsumpcyjnych oraz wskaźnika cen nieruchomości mieszkalnych i uchylające rozporządzenie Rady (WE) nr 2494/95, Dziennik Urzędowy UE nr L 135, 24 maja 2016.

Reichlin L., K. Adam, W. J. McKibbin, M. McMahon, R. Reis, G. Ricco, B. Weder di Mauro (2021), The ECB strategy: the 2021 review and its future, Centre for Economic Policy Research, wrzesień 2021.

Rostagno M., C. Altavilla, G. Carboni, W. Lemke, R. Motto, A. Saint Guilhem, J. Yiangou (2019), A tale of two decades: the ECB’s monetary policy at 20, Europejski Bank Centralny, Working Paper, nr 2346, grudzień 2019.

Schnabel I. (2020), “When markets fail – The need for collective action in tackling climate change”, przemówienie na European Sustainable Finance Summit, Frankfurt n. Menem, 28 września 2020.

Schnabel I. (2021), “From green neglect to green dominance?”, przemówienie na seminarium “Greening Monetary Policy – Central Banking and Climate Change” (część “Cleveland Fed Conversations on Central Banking”), Frankfurt n. Menem, 3 marca 2021.

Scott, M., van Huizen, J., Jung, C.(2017),“The Bank’s response to climate change”, Quarterly Bulletin, czerwiec 2017.

Seppänen, O., Fisk, W. Lei, Q. H. (2006), “Effect of temperature on task performance in office environment”, Lawrence Berkeley National Laboratory, lipiec 2006.

Schoenmaker, D. (2021), “Greening monetary policy”, Climate Policy, tom 21, nr 4, styczeń 2021.

Solana, J. (2018), “The power of the Eurosystem to promote environmental protection”, University of Oslo Faculty of Law Research Paper, nr 2018-23, sierpień 2018.

Szeląg, K. (2003), “Strategia jednolitej polityki pieniężnej w strefie euro – kluczowe elementy i zasady” , Narodowy Bank Polski, Materiały i Studia, nr 162, czerwiec 2003.

Tol, R. S. J (2018), “The economic impacts of climate change”, University of Chicago, Review of Environmental Economics and Policy, tom 12, nr 1, styczeń 2018.

Vermeulen, R., Schets, E., Lohuis, M., Kölbl, B., Jansen, D-J., Heeringa, W. (2018), “An energy transition risk stress test for the financial system of the Netherlands”, De Nederlandsche Bank, Occasional Studies, tom 16-7, październik 2018.

Walter S. (2021), “Information on participation in the 2022 ECB Climate Risk Stress Test”, Europejski Bank Centralny, Frankfurt n. Menem, 18 października 2021.

Whelan, K. (2021), “How should housing be treated in the HICP?” [w:] “Inflation measurement: Role of owner-occupied housing costs”, Parliament Europejski, listopad 2021.

Zekaite, Z. (2020), “What drives consumers’ inflation perceptions in the euro area?”, Central Bank of Ireland, Economic Letters, tom 2020, nr 6.