For this, we will discuss the European System of Central Banks (ESCB), the European Central Bank, Monetary Policy, Inflation, etc. resources. Of course, students base their work on the group and support the network, with the main reference this article.
What is The European System of Central Banks (ESCB)?
The ESCB comprises the European Central Bank (ECB) and the Central Banks of Member States and is directed by the governing bodies of the ECB. Its basic functions are: . Define and implement the monetary policy of the Community.
. Conduct foreign exchange operations consistent with the provisions of the article.
111. Own and manage the official foreign reserves of the Member States.
. Promote the smooth operation of payment systems.
The European Central Bank (ECB ) is the central bank of the single European currency, the Euro, and is the main axis of the Eurosystem. The ECB is part of the European System of Central Banks and is subject to the provisions of the Treaty on the Functioning of the Union and its own statutes.
This entity is one of the most important organs of the European Union (EU) and is headquartered in Frankfurt am Main, Germany.
Overview ECB:
The ECB has the exclusive right of authorizing the issuance of banknotes within the Community.
The ECB and national central banks may issue notes that are the sole legal tender notes in the community. Member States may issue coins do, the volume of issuance must be approved by the ECB.
The bodies of the ECB are the Governing Council and Executive Committee.
The Governing Council is composed of the Executive Committee members and the governors of national central banks.
The Governing Council adopted the guidelines and decisions necessary to ensure compliance with the functions of the ESCB.
The Governing Council formulates the monetary policy of the community.
TREATY ESTABLISHING THE EUROPEAN COMMUNITY
The Executive Committee comprises the president, vice president and four other members. All have been appointed by common accord of the governments of Member States on the basis of a recommendation from the Council after consulting the European Parliament and the Council of Government. Its mandate has a duration of 8 years and is renewable which guarantees the independence of European monetary policy.
The Executive Committee is responsible for the management of the ECB. The ECB uses the national central banks to perform certain operations that correspond to the ESCB. Both the ECB and central banks maintain their national independence.
National Central Banks are present in the ECB's Governing Council and continue to play an important role in implementing monetary policy actions. In the case of other functions such as the possession and management of reserves, the payments system, ticketing, etc., NCBs maintain compatibility with the guidelines issued by the ECB's Governing Council.
NCBs are also developing supervisory functions of credit and treasury management of the government, but this can involve privileged financing.
ECB is headquartered in Frankfurt. It began operations in the second half of 1998, disappeared while the European Monetary Institute.
The ECB's main function is to maintain the purchasing power of the single currency and thus price stability in the euro area that comprises the 16 EU countries that have adopted the euro since 1999 .
The ECB controls the money supply and price developments.
The legal basis of the single monetary policy is set in the Treaty establishing the European Community and the European System of Central Banks (ESCB) and the ECB. Statutes established the constitution of the ECB and the ESCB as from June 1, 1998. The ECB is also responsible for establishing and implementing the broad outlines of economic policy and monetary union .
For this, the ECB works with the ESCB, which includes the 27 EU countries. However, only 16 of these countries have so far adopted the euro, thus constituting the "euro area", and their central banks, together with the ECB, form the "Eurosystem ."
The ECB has legal personality under public international law. It is important to review these concepts.
Jean-Claude Trichet is president of the ECB from November 1, 2003. Succeeded by the first President Wim Duisenberg.
ECB work is organized through the following bodies:
•
The Executive Committee comprises the President of the ECB, the Vice-President and four other members, all appointed by common agreement of the presidents or prime ministers of the euro area countries. Its mandate is eight years non-renewable.
The Committee is responsible for implementing monetary policy defined by the Governing Council and to give instructions to national central banks. It also prepares the meetings of the Governing Council and is responsible for the daily management of the ECB.
• The Governing Council
is the highest decision-making of the ECB. It comprises the six members of the Executive Committee and the governors of 16 central banks in the euro area. It is chaired by the President of the ECB. Its primary mission is to set monetary policy in the euro area and, in particular, to set interest rates that commercial banks can obtain central bank money.
• The General Council
The General Council is the third decision-making body of the ECB. It comprises the ECB President, the Vice President and governors of national central banks of 27 EU member states. Contributes to the advisory and coordination work and helps prepare for the future enlargement of the eurozone.
MONETARY POLICY.
Monetary Policy, are a set of government actions intended to influence economic control demand through an action plan on the amount of money in the system and interest rates.
Central Bank Objectives in its control of money, interest rates and credit conditions.
The primary objective of the ECB's monetary policy is to maintain price stability.
Objective of monetary policy
To maintain price stability is the main objective of the Eurosystem and the single monetary policy for which it is responsible. This was established by the Treaty establishing the European Community, Article 105 (1).
" Without prejudice to the objective of price stability, the Eurosystem also" support the general economic policies of the Community to contribute to the achievement of the objectives of the Community ". These include a "high level of employment" and "non-inflationary sustainable growth."
The Treaty establishes a clear hierarchy of objectives for the Eurosystem. It assigns primary importance to price stability. The Treaty makes clear that Price stability is the most important contribution that monetary policy can do to achieve a favorable economic environment and high employment.
INFLATION.
1 - The concept of inflation .
Inflation is a continuous and widespread increase in prices of goods and services in an economy.
inflation represents a loss of value for money, and that to acquire the same amount of products requires more money. It can become one of the most important problems of an economy social effects-laden, since they are the most disadvantaged or less power to influence prices and wages that are most affected.
Deflation is defined as the continuous and widespread decline in the level of prices of goods and services in an economy. Is not without its problems because of deflation, the Society is encouraged not to consume this in the future because it is cheaper.
The stagnation and decline in consumption in turn causes companies to stop producing and the cessation of production caused by the closure of companies.
therefore a successful economy reside in getting price stability, ie not experience inflation or deflation but keeping inflation at a positive but small enough. Inflation tends
quantified from different indices, the most frequent being the consumer price index (CPI) and the implicit GDP deflator.
best known indicator is the rate of change in CPI. The IPC affects families very directly, as reported in the price level of all goods and services that are considered representative.
When comparing price indices at EU level are not used different national rates, but others built for that purpose, as the index of consumer prices (HICP).
CALCULATION OF INFLATION
To calculate the CPI inflation we from the values \u200b\u200bof this index. Calculate inflation is reduced to the formula of a rate change:
INFLATION = [(IPCT - IPCT-1) / IPCT-1] * 100
2 - Explanatory theories inflation.
2.1. Inflation demand.
The key factor in rising prices lies in aggregate demand. In particular, demand-pull inflation arises when agents make expenditures in excess production capacity of its economy.
· Explanation monetarist.
The reason why the aggregate demand grows beyond the means of production is an increase in the amount of money.
The followers of this current proposed control inflation through monetary policy to only allow growth in the amount of money that strictly correspond to needs arising from economic activity itself.
· Explanation Keynesian.
Keynesians argue that the effect of growth of aggregate demand depends on inflation the magnitude of the increase in aggregate demand and the volume of idle resources exist in the economy.
. If we start from a situation of full employment, increases in aggregate demand will generate increases in prices.
. If we start from a situation in which there are many idle resources, increases in aggregate demand will cause a greater use of resources and increases in supply, so prices need not rise.
2.2. cost inflation.
The main source of inflation is steady growth of business costs, leading employers to raise prices of their products.
Rising business costs can be several causes, including: wage growth, rising raw materials, increases in interest rates.
strong unions have in their hands the possibility to obtain higher wage increases the labor productivity gains, increasing pressure on labor costs on corporate profits. If companies have enough market power to shift the increased labor costs to product prices will start what is known as the wage-price spiral.
If production is increased twice, just enough that workers would required them to pay twice.
The increase in prices of other factors of production other than work can also create inflation, such as the shortage of property used in the production of another. The further operation of the market model of perfect competition, the greater the likelihood of occurrence of cost inflation.
Inflation may also be a result of restrictions on competition. The less competition tends to reduce the quantity of the products and their prices more expensive.
If you believe inflation is labor costs, higher doses should be incorporated
flexibility in the labor market, as more flexible contracts, reducing the amount of unemployment benefits, etc.. If the inflation factor that is the price of energy, seek alternative energy sources.
2.3. Core inflation.
is defined as the increase continuous price-generated widespread deficiencies in the functioning of the institutions of a country.
2.4. What happens in reality?
In modern economies without major structural problems in the short term acknowledges that inflation can be altered by any factor affecting demand and supply, while medium and long term, inflation is mainly due to monetary factors.
Therefore, the monetary authorities in developed countries are concerned to maintain a growth rate of money.
3. Social and economic impact of inflation. (Notes)
3.1. Effects of inflation on production .
if inflation is high and may discourage investments planned in the medium and long term. This is the result of the uncertainty, the aggregate demand, interest rates and the policies to be implemented.
Consequently, the growth rate will decrease, increase unemployment and reduce economic growth.
Also, if the price increases ranging goods and services exported by the country and international competitors such products have more moderate rates of inflation will cause a loss of competitiveness.
3.2. Effects on the allocation of productive resources.
As an inflationary process that prices do not rise equally, changing relative prices of products.
Those products that suffer the greatest price growth will attend a drop in demand for cheaper products. Consequently, companies with more expensive products tend to weaken.
On the other hand, companies have to pay higher prices for their production inputs also pass through difficult times. Companies have to accept significant increases in wages will tend to replace workers by machines, so that will increase unemployment.
3.3. Effects on the distribution of income and wealth.
The main effects of unanticipated inflation are borne on the distribution of income and wealth. have in 1 º place for lenders and borrowers, the borrower receives money that will have to repay the lender in the future. If inflation rises, the borrower is benefited because it only has to return the same purchasing power that you paid the lender, who does not receive any profit. If inflation is increasing rather than decreasing, the effect is the opposite.
In general, the normal thing is that inflation will reach a higher level than expected and that the borrowers are the beneficiaries. The public sector for its status as a major debtor to the rest of agents, is the most favored by inflation.
In countries with high inflation have emerged indexed financial assets. The performances are set according to a price index, so that increases in prices are linked to increases in interest rates.
generates redistributive effects of inflation on non-financial income. Pensioners and workers with little bargaining power that they will not get up wages at the same extent that prices rise so they will be losing purchasing power. By contrast, workers with higher pressure capability to maintain its purchasing power price increases.
4. The role of monetary policy.
· Control of inflation. • Growth
economy.
plenary session employment.
In the economic policy measures differs between:
• An expansionary monetary policy, in which the monetary authority's decisions tend to increase the rate of growth of money supply and / or reduce interest rates.
• A tight monetary policy, which tends to reduce the rate of growth of money supply and / or increasing interest rates.
The start of European Monetary Union on 01/01/1999 meant major changes in monetary policy and the skills that had the Central Bank of Spain in this field. From that date, responsibility for monetary policy passed to the ESCB.
5.La inflation in the world.
The behavior of inflation is not uniform among countries or even between regions within a country. In developing countries, inflation has been strong fluctuations associated with the particular weakness of their economies because of their strong economic imbalances.
In the economies in transition, following the severe political instability, social and economic in its transition to a market economy, have managed to contain inflation in a drastic way.
In advanced countries with economies much more healthy and stable have been continuously reducing their inflation rates. This is due to:
• The practice of tight monetary policies.
• reduction of public deficits.
The policies of liberalization undertaken.
• The absence of sharp increases in energy prices.
Spain in 1986 had an inflation rate more than twice of all EU countries and has managed to place them in below average levels through a process of convergence.
Anyway, the global economic crisis is affecting the whole of Europe and in particular to each of the countries that compose it.
this current topic, which we hope will work better the performance.
The European System of Central Banks (ESCB)
Indices Consumer price. National Institute of Statistics.
