Analysis On European Central Bank's Monetary Policy

European Central Bank (ECB) was founded at 30th June, 1998, and it functioned at 1st July, 1998. The predecessor of ECB is European Monetary Institute (EMI). Nowadays Euro has been admitted by more and more countries all over the world, and that partly owes to the monetary policy of ECB. Therefore, the analysis of ECB's monetary policy can supply the newest experience to other countries and areas, including China.Theoretically speaking, monetary policy is an important part of one country's economic policy. The conception of monetary policy can be compartmentalized to broad sense and narrow sense. In broad sense, all the monetary regulations and measures which are taken by government and central bank should be included. In narrow sense, monetary policy is the summation of regulations and measures, through which central bank adjusts money supply and interest rates to influence economy, and various tools are needed in this process. The main content of monetary policy comprises monetary policy goals, monetary policy tools and transmission mechanisms of monetary policy. Monetary policy can affect economic growth, inflation and economic fluctuation.The final goal of the ECB's monetary policy is price stability, which is the premise of other policies and measures. In the monetary policy strategy which were established in 1998 by ECB, quantified definition of price stability and the choice of intermediate was defined. They can be summarized as"One goal, Two pillars". That is to say in Euro area, the HICP year-growing rate must be kept between 0~2%, which is seen as the weigh standard of price stability; in intermediate, ECB combined monetary target and inflation target, which made up of the"Two-pillar Approach"of the monetary policy strategy: first is to announce the growth reference number of M3 is 4.5% per year, second is to apply a series of economic index to value the price risks in the future.Because ECB use Germanic central bank which is celebrated for defending money all over the world as a design chief source, ECB put price stability at an important place in monetary policy strategy. On the basis of this, ECB absorbed the relevant theory of Keynes and Currencies. In addition, the monetary policy practice of other main countries (United Kingdom, USA and Japan) has certain effects on it. The academic field questioned mainly on the final goal and the second pillar. In view of this, ECB made adjustments on monetary policy strategy in May 2003.In the field of transmission mechanisms of monetary policy, there were many opinions in Western Economics scope. Here, we mainly refer to the Keynes and Currencies. The transmission mechanisms of monetary policy of ECB can be divided into two aspects according to the theories: Economic variable conduction process and microcosmic main body conduction process. The former can be summarized as: ECB controls the operating of monetary policy (rate of short-term money market), using minimum reserve requirement,standing facilities and open-market operations. Moreover, the intermediate of monetary policy ("Two pillars") is affected, and then comes to the final goal of monetary policy (price stability). Thus the latter is completed mainly via the following four channels. 1. Interest rates channel. ECB makes use of indirect way to adjust the market rates. However, the interest rates have effects on actual economy in many ways; for example, to lower the interest rate can stimulate investment and consumption.2. Credit channel. ECB can take out flowing funds of commercial bank by corresponding open-market operations, making those enterprises depending on bank credit reduce investment.3. Finance assets price channel. When ECB carries out the monetary policy to change money supply level, the assets structural adjustment effects will appear in the market and the public consumer decision and consumer demand will be affected.4. Exchange rate channel. Under the present floating rate system, ECB's monetary policy will influence the exchange rate of Euro, and then change the trade conditions in Euro area.As a developing country changing from planned economy to market economy, central bank system had been on the improving progress since the past twenty years. From the characteristics of the ECB's monetary policy and considering our country's reality, we can reach two beneficial enlightenments: the first is that monetary policy should be medium-term; the second is that central bank should analyze all kinds of economic information comprehensively to offer references for the formulation of monetary policy.