Compare and contrast the main policies of the US Federal Reserve and the Europea
ID: 2702208 • Letter: C
Question
Compare and contrast the main policies of the US Federal Reserve and the European Central Bank over the last 10 years. Based on these policies, identify and contrast the main priorities of these institutions. How do these policies affect exchange rates?
I need as close to 750 words as possible. Please no copy and paste. This has to go through tun it in.
Explanation / Answer
I.
The European Central Bank
Creation of the ECB is an evident example and %u2013 so to say - evolutionary stage of theeconomic and monetary integration of Europe. The first attempt to create economically andmonetarily integrated Europe was first mentioned in Barre%u2019s Report of 1969 with an emphasison %u201Cgreater
co-ordination of economic policies and monetary cooperation" (Fratianni, vonHagen & Waller, 1992, 3). Werner Plan of 1970 was the blueprint of economic and monetaryunion in three stages. Finally Delors Report, in 1989, introduced the plan of economic andmonetary union (EMU) in three stages with establishment of new institutions such asEuropean System of Central Banks (ESCB). The first stage of the EMU started in 1990 withaims of abolishment capital controls, improvement of economic cooperation, free use of
European Currency Unit (ECU), and increased cooperation between central banks (EuropeanCentral Bank, [n.d.]). In the second stage of EMU which started in 1994, the forerunner of theECB was established under the name of European Monetary Institute (EMI). The EMI did nothave any responsibility to conduct monetary policy for the European Union (EU) (which isthe basic difference between the EMI and ECB), but had the objectives to
strengthen central bank cooperation and monetary policy co-ordination, and to make necessary preparations for the establishment of the ESCB and the ECB (European Central Bank, [n.d.]). %u201CIn accordancewith Article 123 (ex Article 109l) of the Treaty establishing the European Community, theEMI went into liquidation on the establishment of the ECB in 1998. All the preparatory work entrusted to the EMI was concluded in good time and the rest of 1998 was devoted by theECB to the final testing of systems and procedures.%u201D (European Central Bank, [n.d.]). In 1999,the third stage of the EMU started. Irrevocably fixed exchange rates and the conduct of thesingle currency, Euro, which composed the backbone of the third and final stage of the EMU,were under the control of the ECB.The design of the ECB in the Treaty of Maastricht was proposed to be according to twomodels of central banking, the Anglo - French Model and the German Model, which evolvedin the post-war period. These models have different characteristics in terms of institutionaldesign and objectives of the central bank. Grauwe (2005), on page 164, classifies thedifferences of these models as follows; %u201CIn the Anglo %u2013 French Model, the central bank pursues several objectives, such as price stability, stabilization of the business cycle, themaintenance of high employment, financial stability%u201D. On the other hand, in German Model,the main and primary objective is to achieve price stability; as the central bank has theincentive to pursue other objectives (such as financial stability and financial integration),these objectives should not affect the process of stabilization of the prices. When theinstitutional design is taken into consideration, these models significantly propose different positions for the central banks. %u201CThe Anglo %u2013 French model is characterized by the politicaldependence of the central bank, for instance the monetary policy decisions are subject to thegovernment%u2019s (the minister of finance%u2019s) approval. Thus in this model the decision to raise or lower the interest rate is taken by the minister of finance.%u201D (Grauwe, 2005, 164). The GermanModel, on the contrary, supports political independence and takes its decisions on themonetary policies without the interference of political authorities
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.