Unconventional Monetary Policies of the Economic and Monetary Union Essay

Unconventional fiscal Policies of the Economic and Monetary totality - Essay ExampleThe master(prenominal) body presiding over the decisions of the Union is the Eurosystem which consists of the governors of the European Central Bank (ECB) and national Central Banks (NCBs) of the seventeen member countries (European Central Bank, 2004). While the ECB has only a major share in deciding the policies of the EMU, it bears the whole of the responsibility of implementation of the EMUs policies. The Governing Council of the EMU comprises the people choose over the prospective policies of the EMU. Each person has one vote of the common weight. Members of the council include the President, Vice-President and the four directors of the ECB, and the governors of the NCBs of from each one of the seventeen member countries thereby rendering the total number of Governing Council members twenty-three. Primary Objective The chief(prenominal) object of the EMU as draw in article 105 of the Maa stricht Treaty (Jenkins & Economist learning Unit, 1992, p. 466) is the maintenance of price stability. The article goes on to state that Without prejudice to the objective of price stability, the ECB shall support the command economic policies in the Community with a view to contributing to the achievement of the Community. The reasoning for the plectrum of this objective can be traced to the incentive for the formation of the ECB, which was the fear of rising in flash collectible to the dominance of the Germans over the European economic landscape. Hence the EMU has a stated primary objective of keeping the average growth, over the Union countries, of the Harmonised Index of Consumer worths below two percent (Buti & Sapir, 2002). Monetary Policy In order to pursue this objective the EMU has to choose between the two main macroeconomic approaches. It can either concentrate on an Inflation Targeting approach where a clearly specify objective of numerical indicators of levels of inflation is to be pursued or it can adopt a pecuniary targeting framework where it expands its resources on influencing the monetary aggregate. So far the strategies adopted by the EMU have been described by economists as inclusive of certain aspects of both types of approach a two-pillar approach. The first pillar in this approach is the money depot manipulation while the second pillar comprises the inflation control strategies. It has been unmingled for at least a decade that the monetary aggregate indicators do not correspond to the inflation rates which the monetary control purportedly affects (Bofinger, Reischle, & Scha?chter, 2001). The basis for this approach is the economic relation of the money stock to price stability represented by the Quantity Theory Equation (Mayer, 1990, p. 132) ?m = ?p + ?y ?v Where ? Change from one year to the next m Money stock p Price level y Real GDP v Velocity of stock However the equation and the be monetary theory assume that the mo netary base represents the M3 aggregate. This assumption has turned out to be preposterous from the experience of the Euro area economies in the past decade.