Ligjërata master 2012-2013 syllabusi 2012-2013

2.1.5. Transmission mechanism of monetary policy

This is the process through which monetary policy decisions affect the economy in general and the price level in particular. The transmission mechanism is characterised by long, variable and uncertain time lags. Thus it is difficult to predict the precise effect of monetary policy actions on the economy and price level.

The chart below provides a schematic illustration of the main transmission channels of monetary policy decisions.

Change in official interest rates

The central bank provides funds to the banking system and charges interest. Given its monopoly power over the issuing of money, the central bank can fully determine this interest rate.

Affects banks and money-market interest rates

The change in the official interest rates affects directly money-market interest rates and, indirectly, lending and deposit rates, which are set by banks to their customers.

Affects expectations

Expectations of future official interest-rate changes affect medium and long-term interest rates. In particular, longer-term interest rates depend in part on market expectations about the future course of short-term rates.

Monetary policy can also guide economic agents’ expectations of future inflation and thus influence price developments. A central bank with a high degree of credibility firmly anchors expectations of price stability. In this case, economic agents do not have to increase their prices for fear of higher inflation or reduce them for fear of deflation.

Affects asset prices

The impact on financing conditions in the economy and on market expectations triggered by monetary policy actions may lead to adjustments in asset prices (e.g. stock market prices) and the exchange rate. Changes in the exchange rate can affect inflation directly, insofar as imported goods are directly used in consumption, but they may also work through other channels.

Affects saving and investment decisions

Changes in interest rates affect saving and investment decisions of households and firms. For example, everything else being equal, higher interest rates make it less attractive to take out loans for financing consumption or investment.

In addition, consumption and investment are also affected by movements in asset prices via wealth effects and effects on the value of collateral. For example, as equity prices rise, share-owning households become wealthier and may choose to increase their consumption. Conversely, when equity prices fall, households may reduce consumption.

Asset prices can also have impact on aggregate demand via the value of collateral that allows borrowers to get more loans and/or to reduce the risk premia demanded by lenders/banks.

Affects the supply of credit

For example, higher interest rates increase the risk of borrowers being unable to pay back their loans. Banks may cut back on the amount of funds they lend to households and firms. This may also reduce the consumption and investment by households and firms respectively.

Leads to changes in aggregate demand and prices

Changes in consumption and investment will change the level of domestic demand for goods and services relative to domestic supply. When demand exceeds supply, upward price pressure is likely to occur. In addition, changes in aggregate demand may translate into tighter or looser conditions in labour and intermediate product markets. This in turn can affect price and wage-setting in the respective market.

Affects the supply of bank loans

Changes in policy rates can affect banks’ marginal cost for obtaining external finance banks differently, depending on the level of a bank’s own resources, or bank capital. This channel is particularly relevant in bad times such as a financial crisis, when capital is scarcer and banks find it more difficult to raise capital.

In addition to the traditional bank lending channel, which focuses on the quantity of loans supplied, a risk-taking channel may exist when banks’ incentive to bear risk related to the provision of loans is affected. The risk-taking channel is thought to operate mainly via two mechanisms. First, low interest rates boost asset and collateral values. This, in conjunction with the belief that the increase in asset values is sustainable, leads both borrowers and banks to accept higher risks. Second, low interest rates make riskier assets more attractive, as agents search for higher yields. In the case of banks, these two effects usually translate into a softening of credit standards, which can lead to an excessive increase in loan supply.

2. 2. Ambienti Ekonomik dhe Monetar në Eurozonë - ECB, ESCB dhe Eurosistemi

The ECB's Eurotower in Frankfurt, Germany The Eurotower at night

Since 1 January 1999 the European Central Bank (ECB) has been responsible for conducting monetary policy for the euro area - the world’s largest economy after the United States.

The euro area came into being when responsibility for monetary policy was transferred from the national central banks of 11 EU Member States to the ECB in January 1999. Greece joined in 2001, Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009. The creation of the euro area and of a new supranational institution, the ECB, was a milestone in the long and complex process of European integration.

To join the euro area, the 16 countries had to fulfil the convergence criteria, as will other EU Member States prior to adopting the euro. The criteria set out the economic and legal preconditions for countries to participate successfully in Economic and Monetary Union.

Që nga 1 Janari 1999, Banka Qendrore Europiane (BQE) ka qenë përgjegjëse për zhvillimin e politikës monetare për eurozonë - ekonomia më e madhe në botë, pas Shteteve të Bashkuara.

Eurozona është krijuar kur përgjegjësitë për politikën monetare ishin transferuar nga bankat qendrore të 11 vendeve anëtare të BE në Bankën Qendrore Europiane, në Janar 1999. Greqia u bashkua në vitin 2001, Sllovenia në vitin 2007, Qipro dhe Malta në 2008, ndërsa Sllovakia në 2009. Krijimi i eurozonës dhe i një institucioni të ri mbinacional, të Bankës Qendrore Europiane, ishte një moment historik në procesin e gjatë dhe kompleks të integrimeve evropiane.

Për t'u bashkuar me Eurozonë, 16 shtetet kishin për të përmbushur kriteret konvergjente, siç do bënin shtetet tjera anëtare të BE përpara se ta miratojnë euron. Kriteret përcaktojnë parakushtet ekonomike dhe ligjore për vendet për të marrë pjesë me sukses në Unionin Ekonomik dhe Monetar.

European Central Bank

Banka Qendrore Europiane

The legal basis for the single monetary policy is the Treaty establishing the European Community and the Statute of the European System of Central Banks and of the European Central Bank. The Statute established both the ECB and the European System of Central Banks (ESCB) as from 1 June 1998. The ECB was established as the core of the Eurosystem and the ESCB. The ECB and the national central banks together perform the tasks they have been entrusted with. The ECB has legal personality under public international law.

back to topBaza ligjore për politikë monetare të vetme është Traktati themelues i Komunitetit Europian dhe Statuti i Sistemit Europian të Bankave Qendrore dhe të Bankës Qendrore Evropiane. Statuti ka themeluar si Bankën Qendrore Europiane ashtu edhe Sistemin Europian të Bankave Qendrore (SEBQ), nga 1 Qershori 1998. BQE u krijua si gurthemel i Eurosistemit dhe i SEBQ. BQE dhe bankat qendrore kombëtare, së bashku, kryejnë detyrat që atyre u janë besuar. BQE ka personalitet juridik, sipas të drejtës publike ndërkombëtare.

European System of Central Banks

Sistemi Evropian i Bankave Qendrore

The ESCB comprises the ECB and the national central banks (NCBs) of all EU Member States (Article 107.1 of the Treaty) whether they have adopted the euro or not.

SEBQ përbëhet nga BQE dhe bankat qendrore kombëtare (BQK) të të gjitha shteteve anëtare të BE-së (neni 107.1 i Traktatit), pavarësisht nëse ato kanë adoptuar euron, apo jo.

2.2.1. Eurosystem (Eurosistemi)


The Eurosystem comprises the ECB and the NCBs of those countries that have adopted the euro. The Eurosystem and the ESCB will co-exist as long as there are EU Member States outside the euro area.

Eurosistemi përbëhet nga BQE dhe BQK të atyre vendeve që e kanë adoptuar euron. Eurosistemi dhe SEBQ do të bashkë-ekzistojnë për aq kohë sa ka shtete anëtare të BE jashtë eurozonës.back to top

Basic tasks of the Eurosystem

The Treaty on the Functioning of the European Union entrusts the European System of Central Banks (ESCB) with the task of performing the central bank function for the Union. Since some EU Member States do not participate in Economic and Monetary Union, the terms "ESCB" and "Union" are to be read as "Eurosystem" and "euro area", respectively.

Monetary policy

The Eurosystem is responsible for defining and implementing the monetary policy of the euro area. This is a public policy function that is implemented mainly by financial market operations. Important for this task is the full control of the Eurosystem over the monetary base. As part of that, the ECB and the national central banks (NCBs) are the only institutions that are entitled to actually issue legal tender banknotes in the euro area. Given the dependence of the banking system on base money, the Eurosystem is thus in a position to exert a dominant influence on money market conditions and money market interest rates.

Foreign exchange operations

Foreign exchange operations influence exchange rates and domestic liquidity conditions; both are important variables for monetary policy. Assigning this task to the Eurosystem is therefore logical, also because central banks have the necessary operational facilities. Secondly, if the central bank carries out this task, it ensures that the foreign exchange operations remain consistent with the aims of the central bank's monetary policy.

Promote smooth operation of payment systems

Payment systems are a means to transfer money between credit and other monetary institutions. This function places them at the heart of an economy's financial infrastructure. Assigning the task of promoting their smooth operation to the Eurosystem acknowledges the importance of having sound and efficient payment systems - not only for the conduct of monetary policy but also for the stability of the financial system and as such for the economy as a whole.

Hold and manage foreign reserves

One of the most important reasons for managing the foreign reserves portfolio is to ensure that the ECB has sufficient liquidity to conduct its foreign exchange operations. The ECB's foreign reserves are currently managed in a decentralised manner by the NCBs that opt to take part in operational ECB foreign reserve management activities. These NCBs act on behalf of the ECB in accordance with instructions received from the ECB. Although the NCBs manage their own foreign reserves independently, their operations on the foreign exchange market are, above a certain limit, subject to the approval of the ECB, in order to ensure consistency with the exchange rate and monetary policy of the Eurosystem.

back to topEuro area

The euro area consists of the EU countries that have adopted the euro.