A case for money in the ECB monetary policy strategy

One major outcome of the review of the ECB’s “two pillar monetary policy strategy”, whichwas published on 8 May 2003, has been the de facto downgrading of the hitherto prominentrole assigned to the stock of money. According to the authors’ judgement, however, there is astrong theoretical and empirical rationale for the ECB monetary policy to pay close attentionto the information content of money in the form of M3. However, the authors argue the ECBshould make use of the so-called “price gap” or “real money gap” concept rather than thereference value as the latter runs the risk of giving misleading policy recommendations andcompromising the indicator quality of the stock of money. Making use of M3 seems all themore rational as currently no better inflation indicator appears to exist in providing inflationforecasts in the euro area.