Globalisation and the strategy review
Globalisation means that events on the other side of the world can have an impact on our own economy. It can affect how prices develop, and therefore also has an influence on our monetary policy. That is why we included globalisation as part of our strategy review.
Globalisation can affect prices
Our job is to keep prices stable. To do that well, we need to understand how our economy works. But our economy works very differently today than it did back in 2003. That was when the ECB last carried out a review of its strategy.
Globalisation is one such way the economy has changed. Goods, money and information can now travel a lot faster and further than they once did. This makes trading easier. We can now order products from around the world at the click of a button and have them delivered to our doorsteps within days.
With fewer barriers to trading, competition has increased across countries. To stay in business, companies either hold their prices steady or increase them only a little. This can push down overall increases in the prices of goods and services, also known as inflation.
A new landscape for monetary policy
Globalisation also means that events happening on the other side of the world can affect the euro area. This can be a good thing. An economy that is doing well is likely to buy more goods from other economies, meaning that businesses there are boosted as well. But there are also downsides. Crises can spread quickly, for instance. We saw how the financial crisis and the recent pandemic affected different economies in a very short amount of time. These are just some of the reasons why the Governing Council has discussed globalisation as part of the strategy review.
We adjust our monetary policy depending on how the economy is doing. So we need to have a good understanding of all the ways it is linked to other economies. That is why we are working on improving our analysis to better take into account the global nature of the economy. Better analysis leads to more informed decisions, and that helps keep prices stable.
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24 March 2022
Proportioning policy action to the evidence: making the monetary policy strategy of the ECB concrete