Help me locate the ECB’s “monetary pillar”

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.

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  1. Yes, the “pillar” was substituted somete years ago, I Don’t remember exactly, and passed for a second line.

  2. In te Monthly bulletin or june, 2003, of bank of Spain, it is said that te change was done in may2003.
    In te 2003 may bulletin of ECB, you can read:
    ” Third, in its communication on monetary policy decisions, the Governing Council will stress the way in which it cross- checks information and analysis under the two pillars of its strategy when making an overall assessment of the risks to price stability. To reflect this decision, the Editorial has been restructured. Henceforth, it will first present the economic analysis, which identifies short to medium-term risks to price stability, and then turn to the monetary analysis, which assesses medium to long-term trends in inflation. It will conclude by cross-checking the analyses conducted under these two pillars.”

    Click to access mb200305en.pdf

    Not very transparent, in any case!

  3. Yes, I agree with Luis; officially, the “first pillar”, which was the monetary pillar, was substituted by the so- called “monetary analysis”. It came as a result of the “evaluation” of the ECB strategy in may 2003. Not surprisingly, it was not long after experiencing several quarters (if not years) of persistent deviations of actual M3 growth with the “reference value”, which was said to be consistent with price stability.

    As you all may imagine, this true change in policy making was not trivial, as it ended in a more discretionary monetary strategy and, in my view, in a less prominent role given to the evolution of broad monetary aggregates in the communication policy as well as in the policy strategy of the ECB.
    The only reference you may find on this question afterwards may just be the analyses that the ECB made on the new alternative or “corrected” M3 indicator in the following months; especially in 2004.

    I placed myself this question on the lack of an explicit role for broad money growth in the ECB strategy to some of its economists and they claimed that they did indeed make and incorporate monetary analysis in their models and in making policy, though they did not just focus on a single monetary aggregate as M3 … . I disagree.

    Juan Castañeda


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