Empirical Research On ECB's Monetary Policy Efficiency

In June,1998, European Center Bank (ECB) was created, and starting from Jan. 1999, ECB formally take the resposibility of drawing up and enacting unified monetary policies for the whole Euro Zone. At the same time, Eruo was formally ushered in as an universal book note, which was a milestone within international financial area, as well as a great breakthrough in the history of centre bank development. ECB draws up and enacts unified monetary policies for the whole Euro Zone, leaving fiscal plicies to each government. This is different from traditional centre bank of any sovereignty. Analyzing the efficiency of ECB monetary policies can cast linght on monetary policies making for our countries and other areas. Besides, during the twelve years since its establishment, ECB has gone through several economic ups and downs affected by world economy, especially by the global financial crisis broke in Sep.2008. Lessons could be drawn from studying on the efficiency of ECB monetary policies after the crisis, and comparing it to that before the crisis.This paper first introduce the background and significane of selecting this subject, reviewing the current studies home and abroad, as well as introducing the research method and structure. Then, analyzing and comparing several mainstream economic schools about monetary policy efficiency which include Classicism, Keynesianism, Monetarism, Neo-classicism and Neo-keynesianism. Following this, the paper analyzes both general factors and special factors influencing the efficiency of ECB's monetary policies. After that, this paper introduce ECB's monetary polices with respect to its intruments, intermediary goals and final goals. What's more, this paper reviewing the economic state of Euro Zone and ECB's monetary polices practices since ECB's establishment in 1999. In the empirical part, this paper performs empirical study on the efficiency of ECB's monetary policies for two periods respectively with the help of Eviews, namely from Sep.2003 to Sep.2008 and from Sep.2008 to July 2010. Concerning the influence of monetary polices on intermediary goals, VAR and VEC models with JJ co-integration, inpulse respose and variance decomposition analysis. While analyzing the effect of intermediary goals on final goals, ECM model is used.After theoretical and empirical analysis, this paper arrives at the conclusion that the efficience of ECB's monetary policies before the financial crisis is different from that after the crisis. In detail, there are following conclusions:(1) open market operations are positively connected with broad money supply. That is, when open market operations have been increased by ECB, indicating more money injection into market or less money drawn back, the broad money supply would increase too, and vice versa. (2) Interest rate is short-term monetary policy intrument. Under the particular economic background of Euro Zone, interest rate is positively connected with the broad money supply. However, factors causing such relationship are different before and after the financial crisis. (3) Before the financial crisis, the change of M3 could effectively affect the final goal HICP, causing it to change in the same direction. This transmission mechanism has been damaged to certain extent as the change of M3 is not able to cause the correspodent change of HICP.According to the theoretical and empirical analysis, in order to improve the efficience of ECB's monetary polices, this paper proposes some suggestions:(1) balance the economic development of all the countries within Euro Zone, effectively allocate variate resourecs and improve the intergal efficiency. (2) coordinate monetary policies and fiscal policies of different countries with Euro Zone, avoiding situations in which effect of monetary polices is partly offset by fiscal policies. (3) improve the transparency of the monetary policies in order to reduce the uncertainty of public expectation. (4) with respect to monetary policies strategies, improvement should be made to make sure that public expectation not be disturbed.