An Analysis Of The Independence Of The European Central Bank And The Effectiveness Of Monetary Policy

In January1999, the European Central Bank (ECB) officially operated. Over the following10years, the ECB have carried out a prudent monetary policy to maintain a lower inflation rate within the Euro-zone and the EU as a whole. In this way, ECB has acted as a qualified regulator to keep a stabilize prices rate within the target range. The good functioning of the European Central Bank became a successful example of the regional integration in international financial history. In2009, the European sovereign debt crisis seriously affected the economic development in the euro area, and also brought great difficulties for the ECB’s policy, making the European Central Bank the focus of the worldwide. The ECB’s monetary policy during the crisis also triggered a controversial discussion in academia area.In the background of the European debt crisis, this paper analyses the independence of the European Central Bank and the effectiveness of its monetary policy. Based on the combination of theory and empirical model, this paper gives some short-term and long-term policy recommendations to the future conduct of European Central Bank and also indicates the reform direction of the People’s Bank of China. This paper firstly introduces the theory about independence of Central Bank and the effectiveness of monetary policy to lay a theoretical foundation of the full text. Then, clearly characterize the establishment of the European Central Bank, the organizational structure, its independence and monetary policy objectives, the independence and effectiveness of the monetary policy of the ECB and its implement before the sovereign debt crisis. In the main section of the article, firstly introduce the process of the European debt crisis and the huge impact on the euro area. Secondly, this part sums up a range of monetary policy the European Central Bank has taken during the debt crisis and analyses its negative and positive effects. Based on the theoretical analysis, the paper creates an empirical model which concludes that the independence of the European Central Bank and its monetary policy has been affected by the debt crisis. In the end of the paper, I give ECB some relevant policy recommendations. According to the ECB’s policy during the crisis, advice is also been made for China’s Central Bank to establish corresponding emergency response mechanisms.