Question

Question # 18 Suppose ECB officials ask your opinion about the operational framework for monetary policy. You respond by commenting on their success at keeping short-term interest rate close to target but also express concern about the complexity of their process for managing the supply of reserves. What specific changes would you suggest the ECB make to its system in the future.

Answer 1

As national markets become more integrated, you might suggest that the ECB concentrate its operations in Frankfurt instead of having to coordinate these operations at all the national central banks simultaneously. This alone would greatly simplify the process. You might also suggest that the ECB narrow the list of institutions that qualify as counterparties to open market operations and reduce the range of assets it accepts as collateral in for these operations. You could mention that the need for such changes will become more urgent as more countries join EMU.