In the autumn of 2005, in conditions of inflation observed and projected to be “normal”, the ECB’s monetary analysis began to record a change in the composition of M3 growth: from a model of growth explained by money demand factors – that we would define as irrelevant to the evolution of spending and prices – to a dynamic associated with increased credit creation – that is, to banks’ money supply factors. These changes were accepted as indications that the tenor of monetary policy, despite the moderation of inflationary pressures observed and projected, had become too lax. A new cycle of monetary policy tightening was initiated in December of that year, based on considerations inspired by the monetary pillar, where monetary and financial stability is an intermediate objective for attaining a more balanced development of macroeconomic variables and hence price stability over the long term. In a globalised world, the international financial crisis has not spared the euro area. But today we know that preventive action by the ECB, implemented mainly by considering monetary indicators, has mitigated the impact on incomes and inflation.6 The two operations of three-year refinancing (LTROs) The monetary analysis has also been an essential strategic tool in diagnosing and managing the crisis. In this regard, the analysis that led to the more recent non-standard monetary policy measures can illustrate how the systematic monitoring of banks’ liabilities – money in its broadest sense – can provide guidance on the risks faced by the economy as a whole.
Zdeněk Tůma: Monetary policy governance - comments on the institutional set-up of inflation targeting in Albania Speech by Mr Zdeněk Tůma, Governor of the Czech National Bank, at the Bank of Albania Open Forum on "Preconditions for launching inflation targeting in Albania", Tirana, 1-2 December 2005. *  *  *  Monetary policy is without any doubt one of the most powerful tools for macroeconomic management. While the theoretical background for target-setting is well established, the task of making practical arrangements for conducting policy in order to achieve targets in an efficient way is certainly a very difficult one. Designing a well-functioning system for decision making is thus at the very top of the agenda for any central bank striving to establish a sound monetary policy framework. It is therefore highly commendable that the Bank of Albania is addressing the related issues well in advance. Today, I would like to make several comments on the issues where I feel the Czech National Bank can pass on some observations and know-how based on its almost eight-year experience with decision making under an inflation targeting regime. The discussion about the proposed institutional set-up in Albania provokes a more general debate about the properties of the ‘ideal’ monetary policy decision-making system. Such a discussion of this general issue could reveal some practical implications for the Bank of Albania.