I am still in Russia and do not have much time to blog, but something have been on my mind in the last couple if days. Where did the ECB’s monetary pillar go? In the “old days” the ECB was hugely focused on what was happening to M3 growth. The ECB would talk about it reference value for M3 growth and it would analyse both the nominal and the real “money gap” to assess future inflationary (or deflationary) pressures. This of course to a large extent was the “darling” of then ECB chief economist Otmar Issing. However, Issing is no longer with the ECB and apparently monetary analysis has disappeared from the ECB with him – at least gradually.
Just have a look at the ECB’s Monthly Bulletin – the chapter on monetary analysis and become smaller and smaller in recent years. That is too bad as monetary analysis is more important than ever. However, the ECB now is more narrowly focused on interest rates than has ever been the case before. ECB officials these days very rarely make any comments on money supply growth or monetary factors in general. When did you last time hear an ECB official make a comment on the development in for example money-velocity?
Anyway, the ECB has never official buried the “monetary pillar” – it has just been allowed silently to disappear from the ECB’s policy toolbox. When did this exactly happen? I am not sure and that is why I turn to you dear readers? Who is able to locate the monetary pillar? Have you seen it anywhere? Furthermore, do any of my readers have a view about when the monetary pillar disappeared? Maybe somebody can tell me when the ECB the last time mentioned the reference value for M3 and/or the “money gap”. I am not sarcastic – I genuinely would like to know what happened?
In my view the crisis would have played out much differently if the ECB had kept an eye on the “monetary pillar”. Furthermore, it would be interesting to hear if anybody have a clue about Otmar Issing’s view of this. As far as I know he thinks monetary policy is easy in the euro zone, however Issing style monetary analysis is in fact telling us the opposite – that monetary policy is very tight. See here to see why monetary analysis is telling us that euro zone monetary conditions are very tight.
PS I know I have not answered a number of comments on my previous posts – I hope to get back to that soon. Your comments are much appreciated.