The transmission mechanism of monetary policy involves channels through which monetary policy decisions affect the economy in general and the price level in particular. As the transmission mechanism is characterised by long, variable and uncertain time lags, it is difficult to predict the... more
The central bank is the sole issuer of banknotes and bank reserves, which means that it is the monopoly supplier of the monetary base. Therefore, it can also set the conditions on which banks borrow from the central bank and thus influence the conditions of the interbank money market.
In order to achieve its primary objective - maintaining price stability - the Eurosystem uses a set of monetary policy instruments and procedures, which form the operational framework to implement the single monetary policy.
Monopoly supplier of monetary... more
Price stability implies avoiding both prolonged inflation and deflation.
Inflation is a rise in the in the general price level of goods and services in an economy over a longer period of time resulting in a decline in the value of money and purchasing power. Deflation is a decrease in... more