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Monetary policy glossary


asset-backed securities purchase programme


The legal and political obligation of an independent institution to properly explain and justify its decisions to the citizens and their elected representatives, thereby making it responsible for fulfilling its objectives. The ECB is accountable to the European citizens and, more formally, to the European Parliament.


The day-count convention applied for the calculation of interest on a credit, implying that the interest is calculated over the actual number of calendar days over which the credit is extended, on the basis of a 360-day year. This day-count convention is applied in Eurosystem monetary policy operations. See also day-count convention

Alert Mechanism Report

The first step of the EU’s surveillance procedure for preventing and correcting macroeconomic imbalances. In the report, the European Commission identifies EU Member States that will be subject to further in-depth analysis under the macroeconomic imbalance procedure. See also macroeconomic imbalance procedure (MIP)

American auction

See multiple rate auction (American auction)


asset purchase programme

asset purchases

Given the effective lower bound on policy interest rates, asset purchases are a way for the ECB to create more favourable financing conditions for people and firms, and thus pursue its inflation target. By buying long-term bonds, the Eurosystem reduces the amount of interest rate risk borne by other investors, so the price of that risk and thus bond yields fall. Investors can also put the funds they receive from the Eurosystem into other assets. That pushes those asset prices up and yields down. Lower bond yields mean firms can finance investments more cheaply by issuing bonds, and banks are encouraged to make more loans to people and businesses, at lower rates. Asset purchases also send a signal about the ECB’s intention to keep financing conditions favourable, reducing uncertainty about future interest rate developments. Lastly, buying some types of asset directly lowers the market interest rate paid by the issuers and encourages banks to create more loans. See also effective lower bound (ELB)

automatic fiscal stabilisers

The cyclical component of the budget balance. In contrast to discretionary fiscal policy, these are the changes in the budget balance caused by the automatic reaction of government revenue (particularly income taxes) and government expenditure (particularly welfare spending) to economic fluctuations. As such, they stabilise aggregate demand and thus reduce volatility in economic activity. See also budget balance, discretionary fiscal policy

averaging provision

A provision allowing counterparties to fulfil their reserve requirements on the basis of their average reserve holdings over the maintenance period. The averaging provision contributes to the stabilisation of money market interest rates by giving institutions an incentive to smooth the effects of temporary liquidity fluctuations. The Eurosystem's minimum reserve system allows for averaging.