EUROPEAN CENTRAL BANK Harvard Case Solution & Analysis

European Central Bank Case Study Solution

Monetary Policy of European Central Bank

The meeting which was held in European Central Bank to discuss the monetary policy that they kept the same deposit rate for banks as before which is about 0.4%. The base interest rate was 0.0% of European country. The inflation rate of Eurozone was reduced to 1.5 % from 2% because of the slowing increase in price of oil.

The inflation rate of monetary policy of European countries is about 1.5%, and there is doubt that inflation might increase to 2.0%. The level of unemployment in the European countries lies at about 9.5% whereas the growth of the economy is expected to be grown in the future.

The steps that European central bank has taken to control the stability of price is that the bank is buying bonds of the European Government. They set the policy to purchase the monthly bonds of 60 million euros (65 million Dollar in the US) where they reduced it from 80 million Euros.

Monetary Policy for the Bank of Japan

The meeting for monetary policy which took place on the Bank of Japan discussed the expected growth of GDP to 1.6% from 1.5% which was calculated in the month of January 2017. The cause of the growth of GDP is because the production in the industry has been increasing due to the risein exports. It was also estimated a decline in CPI growth to 1.4 % from 1.5%. The unemployment rate was measured about 2.8% in the month of march, and it’s forecasted that it will increase to 2.9%. The buying of consumption shows a decrease as there is a decline in spending of money by households due to the fewer wages and payroll given to the employees. The inflation rate has been estimated to lower in 2017 by 1.4% from 1.5%.

There had been no changes made in the monetary policy by the central bank of Japan on April 27th. The short-term interest rate policy remained the same by -0.1% and made promises to keep the long-term interest rate such as government debt yield around 0.0% by adjusting the amount of bond buying. For improving the debt yield around, the bank will purchase the Japanese Government Bond (JGB). The bank will buy around 80 trillion yen of JGB to achieve the target level of interest.

EUROPEAN CENTRAL BANK Harvard Case Solution & Analysis

Comparison of Japan Monetary Policy

The difference between Japan’s Monetary Policy for the month of April 27 and March 16 in 2017 is that on 16th march meeting they discussed various policies which were removed on 27th April meeting. On March 16 it had additional information such as Japan’s economy continues to grow at the moderate pace. The reason for the modest growth is because of the consumption of both the private and abroad has been at a moderate pace, and the changes in the consumer price index of inflation are about 0% which has a weakening inflation phase.

Other factors which were discussed at the meeting was that Japan moderate growth is because of it has average exports overseas. There is a chance of CPI index to be increased from 0% to move slightly positive. Whereas it is also explained that consequences of the United Kingdom leaving the Europe Union would also affect the Japan regarding the European Union Debt, as well as the financial sector and also the political risks.  To achieve the price stability of Japan, it will apply methods such as the bank will use Quantitative and Qualitative Monetary Easing for controlling the bond yield curve. As well as various steps such as observing and maintaining the momentum of price stability among its goods and consumption products.

Comparison of Bank of England and Bank of Japan

The comparison between the monetary policy among Bank of England and Bank of Japan is that the Bank of Japan on its meeting did not change any of the monetary policy tools as its expected growth of GDP seems to increase by 1.6%. The inflation rate is estimated to get lower in 2017 by 1.4%, whereas there will be a bit of growth in the level of unemployment of Japan. Whereas the Bank of England in their future meeting which is to be held on 11th may have come to a conclusion that they might not change any of the policy regarding the interest rate, open market operations and federal fund rate. But many of the economists have argued that the UK might face an increase in inflation by 3% in which to counter it the interest rate should be increased by 0.50% from 0.25% so the money supply decreases as well as chances of stopping inflation to get increased.

To maintain price stability, Japan has taken various actions such as buying bonds of around 80 trillion yen of JGB to achieve the target level of long-term interest...................

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