Tuesday, September 13, 2011

Is a single ECB mandate hurting Europe?

The policy mandate for the ECB is to only stabilize the price level and control inflation. The Fed has a dual mandate of controlling inflation and maximizing employment. It may be time that the ECB has a explicit dual mandate for monetary policy. The ECB has a de facto dual mandate given their operations to stabilize the bond markets from sovereign risk. However, because it is not explicit both the bank and the investors are unsure of the next move by the central bank. For example, rates should be lowered but the inflation target will not allow for this action. It may happen but only after inflation declines below the 2% mark. If there was a dual objective of economic stability and growth as well as inflation, it would codify what is already happening.

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