The monetary policy strategy of the Eurosystem

A central bank’s strategy provides the framework for its monetary policy decisions. The strategy specifies monetary policy objectives, the instruments available for the implementation of these objectives as well as the indicators which form the basis for monetary policy decisions.

The Eurosystem’s monetary policy decisions, including the evaluation of the proportionality of such decisions and potential side effects, are based on an integrated assessment of all relevant factors. This assessment builds on two interdependent analyses: the economic analysis and the monetary and financial analysis. The economic analysis focuses on real and nominal economic developments, whereas the monetary and financial analysis examines monetary and financial indicators, with a focus on the operation of the monetary transmission mechanism and the possible risks to medium-term price stability from financial imbalances and monetary factors. The pervasive role of macrofinancial linkages in economic, monetary and financial developments requires that the interdependencies across the two analyses are fully incorporated.

The current framework reflects the changes that the ECB’s economic analysis and monetary analysis have undergone since 2003, the importance of monitoring the transmission mechanism in calibrating monetary policy instruments and the recognition that financial stability is a precondition for price stability.