European Central Bank

The European Central Bank is committed to price stability. Its medium-term goal is to keep the inflation rate at just under two percent. The ECB controls the interest rate on the interbank market, i.e. the market on which banks trade with each other and with the ECB, primarily by setting the prime rate.

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Jürgen Matthes / Markus Demary ·
IW-Kurzbericht Nr. 33 ·
30 March 2020

European Instruments against the Corona crisis in comparison

Various European instruments for countries particularly affected by the Corona crisis are currently under discussion. In this article several requirements will be established and the existing proposals will be measured against them. The instrument of Corona bonds is considered most effective – provided that German policymakers accept the risk-sharing associated with them.

Markus Demary / Michael Hüther ·
IW-Trends Nr. 1 ·
3 April 2018

Is the European Central Bank’s Monetary Policy Still Appropriate?

The monetary policy of the European Central Bank is under fire from two sides. While one side regards the ECB’s monetary policy as too expansionary, the other holds it responsible for keeping the measured inflation rate below target.

Markus Demary / Jürgen Matthes ·
IW News ·
30 January 2018

New Euro area safe bonds: High risks for the ECB

An EU working group presented yesterday a feasibility study for sovereign bond-backed securities. These bonds are designed to reduce the vulnerability of the European banking sector to sovereign debt crises. The problem, however: Should there be any disruptions in the markets for these securities in the event of a crisis, the European Central Bank (ECB) would have to step in.

Markus Demary ·
IW News ·
15 August 2017

ECB: Monetary policy needs limits

The German Constitutional Court has rightly expressed doubts about the monetary policy of the European Central Bank (ECB) and has asked the European Court of Justice for a legal review of it. This time, the case is about the Public Sector Purchase Program (PSPP), within which the ECB has already purchased bonds worth 1.6 trillion euros. The limits on the asset purchases have to be clarified.

Markus Demary / Michael Hüther ·
IW-Kurzbericht Nr. 27 ·
27 March 2017

ECB at the Crossroads

The ECB has left its policy interest rates unchanged despite inflationary pressures stemming from a strengthened recovery and from rising oil prices. Although the ECB’s Governing Council did not discuss a renewal of the long-term refinancing operations, which will expire in 2020, its monetary policy stance is still too accommodative.

Markus Demary ·
IW-Kurzbericht Nr. 17 ·
16 February 2017

The End of Low Interest Rates?

After the economic recovery has strengthened and inflation rates have increased, hopes for higher interest rates emerged among savers, while debtors began to fear higher financing costs. This article argues, that there is room for higher interest rates, but this room is small compared to historical interest rate levels.

Fed’s interest rate decision ·
IW News ·
2 February 2017

Conflict postponed

The US Federal Reserve has not raised its key interest rates despite good economic data. The new US government is likely to be satisfied with this decision, because low interest rates help to fund its planned infrastructure projects. The political pressure on the Fed is therefore likely to increase.

Markus Demary / Michael Hüther ·
IW-Kurzbericht Nr. 12 ·
1 February 2017

ECB Might Overshoot the Inflation Target

The European Central Bank (ECB) has prolonged its large-scale asset purchase programs for public and private bonds in December 2016 until the end of 2017. Otherwise the programs would have expired in March 2017. Due to its strong focus on the inflation target of below, but close to 2 percent, the extension of the asset purchasing programs was expected in case of weak inflation dynamics. Inflation, however, recovered at the end of last year due to normalizing oil prices.

Michael Hüther in The International Economy ·
Contribution ·
3 January 2017

The U.S. experience should lead the way

Despite of the European Central Bank’s (ECB) accommodative monetary policy stance, Euro Area inflation expectations remain persistently depressed. Financial intermediaries’ interest rate margins have been squeezed and the secondary market for sovereign debt is running out of bonds. As a consequence more and more European economists call for a tool of last resort – helicopter money. A contribution by Michael Hüther for The International Economy, a specialized quarterly magazine.

Matthias Diermeier / Henry Goecke ·
IW-Policy Paper Nr. 17 ·
21 December 2016

Money supply and inflation in Europe: Is there still a connection?

Since the outbreak of the European financial and economic crisis in 2008, the monetary policy of the European Central Bank (ECB) has been in crisis mode. Ensuring that the growth in the money supply transmutes into higher inflation or inflation expectations has been difficult.