Evolution of Monetary Policy Strategies in Europe

Europe has a rich monetary history. Until recently, its many central banks assigned divergent priorities and pursued policy objectives via different routes. As a result, Europe's past provides fertile ground for those seeking practical guidance to the art ofcentral banking. The importance of this past gained a new dimension with the prospect of Economic and Monetary Union in 1999, as the participating countries were faced with the challenge of bridging their differences and forging a common monetary policy strategy that would apply throughout the new currency area. At the same time, these countries sought to build forth on the theretofore most successful central bank strategies, thereby maintaining a certain degree of policy continuity. Monetary policy strategy is at the core of central banking. This strategy determines how incoming information on economic developments is translated into monetary policy actions and how these policy actions are communicated to the public at large. In other words, the strategy fulfils the dual role ofimposing a structure on the internal policy-making process and ofproviding a vehicle for the external communication of this process. The design of a monetary policy strategy thus brings together key elements­ such as consistency and transparency - that together determine the effectiveness and credibility ofmonetary policy.

`The book is well written and uses a non-formal approach, making it accessible to an audience broader than just the inner circle of monetary policy experts. In my opinion, Houben has done a good job in providing both a complete overview of the theoretical arguments and consideration that are of relevance for an optimal choice of monetary policy strategy and the Europe's experience with these choices since 1975.' De Economist 150:2, 2002

Aerdt Houben is Head of the Monetary Analysis Division at De Nederlandsche Bank. He is also a member of the Monetary Policy Committee of the European System of Central Banks. He has written extensively on macroeconomic policy and monetary issues for both Dutch and international publications. He was previously employed by the International Monetary Fund and holds a Ph.D. from the University of Groningen, in the Netherlands.