Monetary Theory of Germany Research Paper Example | Topics and Well Written Essays - 2250 words

Monetary Theory of Germany - Research Paper Example The Bundesbank Act of 1957 birthed the central bank of Germany. In the period since the independent Bundesbank has been successful in pursuing price stability. In fact, the ECB and other central banks in the EU transition economies have been modeled after it. The Bundesbank, by any definition of targeting, cannot be defined as a monetary targeter (Haan 67). Instead, it consciously uses its monetary targets as a signaling framework for intent and explaining its policies to the public. This has given the monetary stance taken by the bank an increased level of transparency, which has, in turn, enhanced its flexibility when it comes to economic responses such as the reunification process. Another step that the bank has taken to its benefit has been its independence from control by political events. The Bundesbank has taken transparency in a meaningful manner and has announced, publicly, its medium-term policy goal of a 2% inflation rate and given information regarding its economic outcomes and policies that are necessary assessing the bank’s performance. Its steps towards this direction have proven that accountability to the standard that clearly helps rather than stands in the way of central bank independence in the long term. The highest form of praise for the successful steps taken by the Bundesbank over the past years has been imitation by other central banks. This has especially been so because of its independence from political control, a legal statement that commits itself to price stability, and monetary target adoption. (Haan 70). The Bundesbank is not a monetary targeter. However, this does not imply that inflation in Germany has stayed low due to fac tors beyond the bank’s control or luck. Historical records, as well as those from the past five years, have shown a different utilization of monetary targets. It uses the targets as a signaling framework. On top of increased transparency, the Bundesbank has taken to disciplined discretion (Haan 70). This is neither a complicated hidden law followed by the Bundesbank or the occurrences that follow when conservative central banks possess autonomy. It means that the bank has committed itself in publicly clarifying the stance and intent of its monetary policy regarding its