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Monetary policy glossary

earmarking system

A system for central banks' collateral management where liquidity is provided against assets earmarked for each individual transaction.


See European Central Bank (ECB)

ECB time

The time of the place in which the ECB is located.

economic analysis

One part of the integrated analytical framework that forms the basis for the Governing Council’s monetary policy deliberations. The economic analysis is built around: short-term developments in economic growth, employment and inflation, and the assessment of the drivers of shocks that hit the euro area economy; the Eurosystem and ECB staff projections of key macroeconomic variables over a medium-term horizon; and the evaluation of the risks to economic growth and price stability. In addition, it looks at structural trends in the euro area economy and their implications for inflation, the potential output of the economy and the equilibrium real rate of interest; it considers the role and importance of heterogeneities and of non-linearities; and it makes use of granular data, including surveys of expectations, such as the Consumer Expectations Survey.

Economic and Financial Committee (EFC)

A consultative EU body set up at the start of Stage Three of Economic and Monetary Union (EMU). The Member States, the European Commission and the ECB each appoint no more than two members of the Committee. Each Member State selects one member from among the senior officials of its national administration, and the second member from among the senior officials of its national central bank. However, the national central bank members only participate in EFC meetings when issues of their institution's particular expertise or competence are being discussed. Article 134(2) of the TFEU contains a list of the tasks of the Economic and Financial Committee.

Economic and Monetary Union (EMU)

The outcome of the process laid down in the Treaty establishing the European Community for harmonisation by EU Member States of economic and monetary policies and for introduction of the euro. Three stages were provided for: Stage One (1 July 1990 to 31 December 1993), removal of barriers to free movement of capital within the EU, better coordination of economic policies and closer cooperation between central banks, Stage Two (1 January 1994 to 31 December 1998), establishment of the European Monetary Institute (EMI) followed by preparations for introduction of the euro, avoidance of excessive deficits and enhanced convergence of policies (to ensure stable prices and sound public finances). Stage Three (from 1 January 1999) began with irrevocable fixing of exchange rates, transfer of monetary competence to the ECB and the introduction of the euro. The TFEU no longer refers to the three stages of EMU, as this progressive terminology is outdated. See also Treaty on the Functioning of the European Union


See excessive deficit procedure (EDP)


See European Economic Area (EEA)


See effective exchange rate (EER) of the euro


See Economic and Financial Committee (EFC)

effective exchange rate (EER) of the euro

A weighted average of bilateral euro exchange rates against the currencies of the euro area’s main trading partners. The EER indices of the euro are calculated against different groups of trading partners (see EER-18 and EER-41). The weights used reflect the share of each partner country in the euro area’s trade in manufactured goods and services and account for competition in third markets. See also nominal effective exchange rate (EER) of the euro, real effective exchange rate (EER) of the euro

effective lower bound (ELB)

A limit to how low interest rates can go. It exists because, rather than buying a financial asset that earns a negative interest rate, you can always decide to hold your assets in cash, which earns zero interest. In reality, the limit may be below zero, as storing cash actually generates some costs (e.g. it might require secure storage facilities). When the ECB has little room to cut interest rates because they are near the effective lower bound, it can use other tools such as asset purchases. See also asset purchases, new monetary policy instruments


See European Financial Stability Facility (EFSF)


See European Financial Stabilisation Mechanism (EFSM)


See effective lower bound (ELB)

elderly dependency ratio

The proportion of the population of a country aged 65 and over in relation to the population aged 15 to 64.


Euro Money Market Survey

Employment Guidelines

Guidelines adopted by the EU Council in line with Article 148(2) TFEU to provide the framework for defining the employment policies of the Member States and of the Union. See also Broad Economic Policy Guidelines (BEPGs), Integrated Guidelines


See European Monetary System (EMS)


See Economic and Monetary Union (EMU)

enhanced credit support

The non-standard measures taken by the ECB/Eurosystem during the financial crisis with a view to supporting financing conditions and credit flows above and beyond what could be achieved through reductions in key ECB interest rates alone.


See euro overnight index average (EONIA)

equilibrium real interest rate

The interest rate consistent with inflation at its target and where the economy is operating at its potential. There is broad consensus that a decline in productivity growth, demographic factors and persistently higher demand for safe and liquid assets in the wake of the global financial crisis have contributed to lowering the equilibrium real interest rate, although estimates remain subject to uncertainty. The decline in the equilibrium real interest rate has made it harder for the ECB to combat disinflationary shocks solely by cutting interest rates.

equity market

The market in which equities are issued and traded.

equity price risk

The risk of loss arising from movements in equity prices. The Eurosystem is exposed to equity price risk in its monetary policy operations to the extent that equities are considered to be eligible as tier two assets.


See exchange rate mechanism II (ERM II)

ERM II fluctuation margins

The mutually agreed floor and ceiling within which ERM II member currencies are allowed to fluctuate against the euro. See also exchange rate mechanism II (ERM II)


See European System of Central Banks (ESCB)

EU enlargement

The European Union currently has 27 Member States. In addition to the first six Member States of the EEC — Belgium, France, Germany, Italy, Luxembourg and the Netherlands — 21 further countries are now members of the Union. These are: Denmark and Ireland (1973); Greece (1981); Spain and Portugal (1986); Austria, Finland and Sweden (1995); the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia (2004); Bulgaria and Romania (2007); and Croatia (2013). Albania, Moldova, Montenegro, North Macedonia, Serbia, Türkiye and Ukraine have the status of candidate countries. The United Kingdom was a member of the European Union from 1973 until its withdrawal in 2020.

EU Member State

See Member State


See euro interbank offered rate (EURIBOR)


The name of the European single currency adopted by the European Council at its meeting in Madrid on 15 and 16 December 1995.

euro area

The area formed by the EU Member States whose currency is the euro and in which a single monetary policy is conducted under the responsibility of the Governing Council of the ECB. The euro area currently comprises Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.

euro interbank offered rate (EURIBOR)

The rate at which a prime bank is willing to lend funds in euro to another prime bank. The EURIBOR is calculated daily for interbank deposits with a maturity of one week and one to 12 months as the average of the daily offer rates of a representative panel of prime banks, rounded to three decimal places.

euro overnight index average (EONIA)

A measure of the effective interest rate prevailing in the euro overnight market, calculated i) (up to 30 September 2019) as a weighted average of the interest rates on unsecured interbank overnight lending transactions denominated in euro, as reported by a panel of banks; and ii) (from 2 October 2019 until its discontinuation on 3 January 2022) as the €STR plus a fixed spread of 8.5 basis points, with the €STR reflecting the trading activity of the previous TARGET2 business day. See also euro short-term rate (€STR)

euro short-term rate (€STR)

A reference rate, based on money market statistical reporting data collected by the Eurosystem, reflecting the wholesale euro unsecured overnight borrowing costs of banks located in the euro area and first published by the ECB on 2 October 2019. The €STR is published on each TARGET2 business day on the basis of the previous day’s trading activity.

European Central Bank (ECB)

The ECB was established on 1 June 1998 in Frankfurt am Main as the body at the centre of the European System of Central Banks (ESCB) and the Eurosystem. Together with the national central banks of the EU Member States whose currency is the euro, the ECB defines and implements the monetary policy for the euro area. Since the entry into force of the Treaty of Lisbon on 1 December 2009, the ECB has been an EU institution. See also euro area, European System of Central Banks (ESCB), Eurosystem, national central bank (NCB)

European Commission

The EU institution established in 1967 (for the then three European Communities) that drafts proposals for new EU legislation (which it presents to the European Parliament and the EU Council for adoption), makes sure that EU decisions are properly implemented and supervises the way EU funds are spent. Together with the Court of Justice of the European Union, it ensures that legislation applying to all EU Member States is properly implemented and that the provisions of the TFEU are applied in full. See also Court of Justice of the European Union (CJEU)

European Council

An EU institution that brings together the Heads of State or Government of the EU Member States, the President of the European Council and the President of the European Commission to provide the European Union with the necessary impetus for its development and to define the general political guidelines thereof. See also Council of the European Union (EU Council)

European Economic Area (EEA)

A free-trade area encompassing EU Member States and Iceland, Liechtenstein and Norway.

European Financial Stabilisation Mechanism (EFSM)

An EU facility, based on Article 122(2) of the Treaty, that allows the Commission to raise up to €60 billion on behalf of the EU for lending to EU Member States experiencing, or being threatened with, exceptional circumstances beyond their control. EFSM lending is subject to strong conditionality in the context of joint EU-IMF programmes. See also European Stability Mechanism (ESM)

European Financial Stability Facility (EFSF)

A limited liability company established by the euro area countries, on an intergovernmental basis, for the purpose of providing loans to euro area countries in financial difficulties. See also European Stability Mechanism (ESM)

European Monetary System (EMS)

An exchange rate regime established in 1979 to foster closer monetary policy cooperation between the central banks of the Member States of the European Economic Community (EEC) so as to lead to a zone of monetary stability in Europe. The main components of the EMS were the ECU (a basket currency made up of the sum of fixed amounts of currencies of EEC Member States), the exchange rate and intervention mechanism (ERM) and various credit mechanisms. It was replaced by ERM II (exchange rate mechanism II) at the start of Stage Three of Economic and Monetary Union (EMU) on 1 January 1999. See also European Currency Unit (ECU), exchange rate mechanism II (ERM II)

European Parliament

An EU institution that currently consists of 705 directly elected representatives of the citizens of the Member States. It plays a role in the EU's legislative process, although with differing prerogatives that depend on the procedures through which the respective EU legislation is to be enacted. Where monetary policy and the ESCB are concerned, the powers of the European Parliament are mainly consultative in character, although the TFEU provides for certain procedures with respect to the democratic accountability of the ECB vis-à-vis the Parliament (presentation of the ECB's Annual Report, including a general debate on monetary policy, and hearings before the competent parliamentary committees).

European System of Central Banks (ESCB)

The central banking system of the European Union. It comprises the ECB and the national central banks of all EU Member States (but the national central banks of EU Member States whose currency is not the euro are not involved in the conduct of the Eurosystem's monetary policy for the euro area because they retain responsibility for monetary policy under national law). See also euro area, European Central Bank (ECB), Eurosystem, national central bank (NCB)


See euro short-term rate (€STR)


The central banking system of the euro area. It comprises the ECB and the national central banks of those EU Member States whose currency is the euro. See also euro area, European Central Bank (ECB), European System of Central Banks (ESCB), national central bank (NCB)

Eurosystem business day

Any day on which the ECB and at least one national central bank are open for the purpose of conducting Eurosystem monetary policy operations.

Eurosystem staff projections

The results of exercises conducted by Eurosystem staff to project possible future macroeconomic developments in the euro area as part of the economic analysis.

excessive deficit procedure (EDP)

The provision set out in Article 126 TFEU and specified in Protocol No 12 on the excessive deficit procedure requires EU Member States to maintain budgetary discipline, defines the criteria for a budgetary position to be considered an excessive deficit and regulates steps to be taken following the observation that the requirements for the budgetary balance or government debt have not been fulfilled. This is supplemented by an EU Council Regulation on speeding up and clarifying the implementation of the excessive deficit procedure, which is one element of the Stability and Growth Pact.

excessive imbalance procedure

Refers to the corrective arm of the macroeconomic imbalance procedure, which is initiated when excessive macroeconomic imbalances are identified in an EU Member State, including imbalances that jeopardise the proper functioning of Economic and Monetary Union. The procedure includes issuing policy recommendations, the preparation of a corrective action plan by the Member State concerned, enhanced surveillance and monitoring requirements and, in respect of EU Member States whose currency is the euro, the possibility of financial sanctions in the event of a failure to take corrective action. See also Economic and Monetary Union (EMU)

exchange rate mechanism II (ERM II)

The exchange rate arrangement established on 1 January 1999 that provides a framework for exchange rate policy cooperation between the Eurosystem and EU Member States whose currency is not the euro. Although membership in ERM II is voluntary, Member States with a derogation are expected to join. This involves establishing both a central rate for their respective currency's exchange rate against the euro and a band for its fluctuation around that central rate. The standard fluctuation band is ±15%, but a narrower band may be agreed on request. Foreign exchange intervention and financing at the margins of the standard or narrower fluctuation bands are, in principle, automatic and unlimited, with very short-term financing available. However, the ECB and the non-euro area national central banks participating in ERM II could suspend automatic intervention if such intervention were to conflict with their primary objective of maintaining price stability.

exchange rate targeting

A monetary policy strategy aiming for a given (usually a stable or even fixed) exchange rate against another currency or group of currencies.

exchange rate volatility

A measure of the variability of exchange rates, usually calculated on the basis of the annualised standard deviation of daily percentage changes.

Executive Board

One of the decision-making bodies of the ECB. It comprises the President and the Vice-President of the ECB and four other members, all of whom are appointed by common accord by the Heads of State or Government of the EU Member States whose currency is the euro. See also General Council of the ECB, Governing Council