The European Central Bank began operation in January 1999. The nineteen countries now covered by the ECB have a single monetary policy.  However, it should be noted that while there is a positive correlation between economic activity in the countries, this correlation is not very high.  Thus, member countries can experience wide ranges of economic conditions.  Like the Fed, the ECB’s stated mission is to maintain a low and stable rate of inflation.  Show and explain how the variance in economic conditions can make the implementation of monetary policy more challenging.

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Asked May 8, 2019
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The European Central Bank began operation in January 1999. The nineteen countries now covered by the ECB have a single monetary policy.  However, it should be noted that while there is a positive correlation between economic activity in the countries, this correlation is not very high.  Thus, member countries can experience wide ranges of economic conditions.  Like the Fed, the ECB’s stated mission is to maintain a low and stable rate of inflation.  Show and explain how the variance in economic conditions can make the implementation of monetary policy more challenging. 

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Expert Answer

Step 1

The ECB (European Central Bank) is the utmost (central) bank that is responsible for conducting monetary policy within the EU (European Union) member countries which have adopted the euro currency. The ECB began its operations on 1 January 1999 and its headquartered at Frankfurt, Germany.  Presently, there are 19 nations that have adopted euro currency and the region where this euro currency used for transaction purposes is known as the eurozone. The ECB is an official EU body at the heart of Euro-system and the single supervisory mechanism. However, the main aim of the ECB according to the Article 2 of the statute of the ECB is to maintain price stability in the euro area; therefore, aims to preserve the purchasing power of the euro.

Step 2

In the EU, there are 19 member states and among these 19 member states, there is free trade of land, capital, labor, and technology i.e. each and every citizen is free to move and allocate itself anywhere in all the 19 member states. However, this freedom of movement of labor and other resources causes development disparities due to large migration within the EU. That means the citizens will move more towards those member states in which their production cost is least and facilities to earn their living is high. Therefore, it must be noted that while there is a positive correlation betwe...

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