Central bank targets

Doug Henwood dhenwood at panix.com
Tue Aug 17 08:47:10 PDT 1999


Chris Burford wrote:


>The European central bank has a differently set target of inflation less
>than 2%. It is suggested that it is also constitutionally allowed to take
>into account other factors, but I have not heard exactly how this is
>spelled out.

The language in the "Constitution of the European System of Central Banks" <http://europa.eu.int/abc/obj/treaties/en/entr8d.htm#25> is very restrictive, more restrictive than the language of U.S. law on the Fed. Its main responsibility is assuring price stability. Quoting from the LBO piece on EMU <http://www.panix.com/~dhenwood/EMU.html>:

<quote> The Maastricht Treaty specifies that the president of the ECB and its governing board must be restricted to "persons of recognized standing and professional experience in monetary or banking matters," language even more restrictive than the U.S. law regulating appointments to the Fed's board of governors "due regard to a fair representation of the financial, agricultural, industrial, and commercial interests" of the country and its regions. The Fed, according to law, is also supposed to make policy "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." The ECB's charter says nothing about this; its primary mandate is "to maintain price stability." which is thought to mean an inflation rate of 2% or less. Of course, the Fed typically does what it damn well pleases despite the law, but the more restrictive language of the ECB's charter says something about the priorities of the people who created it. </quote>

I can't provide a link to the U.S. law on the Fed, but there's a button that will take you there in the web version of the LBO piece.

Doug



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