The Eurosystem and the Federal Reserve System Comp

ZentrumfürEuropäischeIntegrationsforschungCenterforEuropeanIntegrationStudiesRheinischeFriedrich-Wilhelms-UniversitätBonnB022002ZentrumfürEuropäischeIntegrationsforschungCenterforEuropeanIntegrationStudiesRheinischeFriedrich-Wilhelms-UniversitätBonnWalter-Flex-Straße3D-53113BonnGermanyTel.:Fax:http:[phone]+49-228-73-1809//:FactsandChallenges#KarlheinzRuckriegel*)andFranzSeitz+)February2002+)UniversityofAppliedSciencesAmberg-Weiden*)UniversityofAppliedSciencesNurembergHetzenrichterWeg15Bahnhofstr.87D-92637WeidenD-90402NürnbergGermanyGermanyTel.:(+49)-961/382-172Tel.:[phone]Fax.[phone]Fax:[phone]E-mail:[e-mail]-mail:[e-mail]:ThispapercomparestheFederalReserveSystemandtheEurosysteminfouraspects.Thesearetheinstitutionallevel,themonetarypolicyinstruments,theoperationalframeworkandthemonetarypolicystrategyapplied.Ithighlightsthesimilaritiesandthedifferencesaswellastheefficiencyofthedifferentsettings.JEL:E42,E52#WethankM.GoodfriendandR.PorterfromtheFederalReserveSystem,U.BindseilfromtheECB,E.Görgens(UniversityBayreuth),K.Wesche(UniversityBonn),B.Hayo(UniversityEssen)aswellasS.Haas(UniversityofAppliedSciencesAmberg-Weiden)andS.Luther(UniversityofAppliedSciencesNuremberg)fortheirvaluablesupport.1TheEurosystemandtheFederalReserveSystemCompared:FactsandChallenges1.IntroductionOnJanuary1st,1999themonetarypolicyresponsibilityintheEuropeanMonetaryUnion(EMU)passedontotheEurosystem.Sincethenworldwideattentionhasincreasinglyconcentratedontwocentralbanks:theEurosystemandtheFederalReserveSystem(Fed).Yet,acoherentandcomprehensivecomparisonofthesetwosystemshasbeenmissing.1Thisisthetasktobeaccomplishedinthefollowing.Thepaperstartswiththeinstitutionalsettings(section2and3).Thefollowingpartscomparethemonetarypolicystrategy(section4),themonetarypolicyinstruments(section5)andtheoperationalaspects(section6).Thelastchaptersummarizesthemostimportantresultsanddrawssomeconclusions.2.Institutionalstructureanddecisionmaking2ThetermEurosystemisnottobefoundinthelegalbasis,i.e.theTreatiesofMaastrichtandAmsterdamincludingtheprotocolswhicharepartsoftheEUTreaty.TheonlyreferencehereistotheEuropeanSystemofCentralBanks(ESCB).TheESCBcomprisesthelegallyindependentnationalEUcentralbanks(NCBs)(currently15)andthelegallyindependentEuropeanCentralBank(ECB).TheECBwasestablishedonJune1st,1998asacommonsubsidiaryofthenationalcentralbankslocatedinFrankfurt/Main.ThetermEurosystemwasintroducedbythedecision-makingbodiesoftheECBatthebeginningofStage3ofEMU(January1st,1999)inordertodesignatethosepartsoftheEuropeanSystemofCentralBankswhichareresponsibleformonetarypolicyintheeuroarea(ECB,1999a,7).Therefore,inadditiontotheECBtheEurosystemonlycomprisesthenationalcentralbanksofthecountriesparticipatinginthemonetaryunion.TheEurosystembearstheexclusiveresponsibilityformonetarypolicyintheEMU.TheECBistheheartoftheEurosystem.ItisresponsibleforcarryingoutalltasksoftheEurosystemeitherthroughitsownactivityorthroughthenationalcentralbanks.Thismeansthatthenationalcentralbanksare,byfunction,subordinatedtotheECBtoallowtheEurosystemtooperateefficientlyasasingleentitywithaviewtoachievingtheobjectivesoftheTreaty.(...)AsintegralpartsoftheEurosystem,thenationalcentralbanksactasoperativearmsofthe1DeNederlandscheBank,2001,Blenketal.,2001,Fase/Vanthoor,2000,andGoodfriend,2000,aregoodexampleswhichdealwithspecificaspects.ThepolicyoftheFedinthelastdecadesisanalyzedbyIreland,2000,andCooper/Little,2000.AnoverviewofmonetarypolicyproceduresofdifferentcentralbanksbeforeEMUmaybefoundinBernanke/Mishkin,1992.2FortheinstitutionalaspectsoftheEurosystemindetailseeGörgensetal.,2002,chapterII.1.2ESCB,carryingoutthetasksconferredupontheEurosysteminaccordancewiththerulesestablishedbytheECB.(ECB,1999c,57,61).Therefore,thebasicprincipleoftheEurosystemiscentralizeddecision-making,decentralizedoperations.Theprincipleofdecentralizationstipulatesthat,totheextentdeemedpossibleandappropriate,thecarryingoutofthemonetarypolicyoperationsisthetaskoftheNCBs.However,decentralizationappliestooperationsonly.Themonetarypolicydecisionsandlegislativeactivitiesremaincentralizedasnecessaryforacommonmonetarypolicy.UnliketheECBandtheNCBs,theEurosystemandtheESCBhaveneitherlegalpersonalitynorcompetencetopassdecisionsontheirown.Botharegovernedbythedecision-makingbodiesoftheECB(theGoverningCouncil,theGeneralCouncilandtheExecutiveBoard).TheGoverningCounciloftheECBisthecentraldecision-makingbodyoftheEurosystem.Itconsistsofthepresidentandthevice-presidentoftheECB,the(four)furthermembersoftheExecutiveBoardandthegovernorsoftheeuroareaNCBs.ThetermofofficeofthepresidentoftheECBiseightyears.3Ingeneral,thisisalsotruefortheremainingmembersoftheBoard.InordertopreventallBoardmembersfromleavingatthesametime,theirtermsofofficewerestaggeredinthecaseoftheirfirstappointment.ThetermsoftheBoa