These elements increase the credibility of policy commitments, thereby allowing a policy-maker to steer expectations of other actors in line with its long-term intentions and overcoming the short-term bias resulting from the time inconsistency problem. Both of these crucial elements are in place in the euro area as regards the single monetary policy.
The Treaty on the Functioning of the European Union establishes a strong institutional framework for monetary policy in the euro area based on central bank independence and a primary objective of price stability, as enshrined in Articles 130 and 127, respectively.