These pages have been compiled to guide students and teachers through each round of the competition, in particular the analysis round.

  • About the Eurosystem

  • 1

    Euro area, Eurosystem, European Central Bank and European System of Central Banks

    Since 1 January 1999 the European Central Bank (ECB) has been responsible for conducting monetary policy for the euro area - the world’s largest economy after the United States.

    The euro area came into being when responsibility for monetary policy was transferred from the national central banks (NCBs) of 11 EU Member States to the ECB in January 1999. Greece joined in 2001, Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014 and Lithuania in 2015.
    The creation of the euro area - consisting of the 19 EU countries that have adopted the euro as common currency - and of a new supranational institution, the ECB, was a milestone in the long and complex process of European integration.

    To join the euro area, the 19 countries had to fulfil the convergence criteria, as will other EU Member States prior to adopting the euro. The criteria set out the economic and legal preconditions for countries to participate successfully in Economic and Monetary Union.

    The legal basis for the single monetary policy of the Eurosystem is the Treaty on the Functioning of the European Union (TFEU) and the Statute of the European System of Central Banks and of the European Central Bank (ESCB Statute). The ESCB comprises the ECB and the NCBs of all Member States of the European Union, irrespective of whether they have adopted the euro or not. The Eurosystem comprises the ECB and the NCBs of those Member States whose currency is the euro.

    The Eurosystem and the ESCB will coexist as long as there are Member States outside the euro area. The ECB was established as the core of the Eurosystem and the ESCB. 

    The main decision-making body of the Eurosystem is the ECB’s Governing Council. It comprises the heads of the national central banks of the euro area countries and the six members of the Executive Board of the ECB.

    The most important topic of the meetings of the Governing Council is to discuss and decide on monetary policy. The primary objective of the Eurosystem’s monetary policy is to maintain price stability in the euro area.

    The Governing Council meetings dedicated to monetary policy are held every six weeks. At these meetings, the Governing Council assesses economic and monetary developments and takes its monetary policy decision. Non-monetary policy meetings are held at least once a month. The purpose of these meetings is to mainly discuss issues related to the other tasks and responsibilities of the ECB and the Eurosystem. The meetings usually take place at the ECB in Frankfurt am Main, Germany.

    The monetary policy decision is explained in detail at a press conference held shortly after each monetary policy meeting. The President together with the Vice-President chairs the press conference, which is divided into two parts: the President first reads out the Introductory Statement, which provides the rationale for the monetary policy decision taken by the Governing Council, and then answers the journalists’ questions.

    In addition, the ECB publishes regular accounts of the Governing Council’s monetary policy meetings before the date of the next one.

    The Governing Council’s responsibilities include:

    • formulating monetary policy for the euro area. This includes taking decisions relating to monetary objectives, key interest rates and the supply of reserves to the banks in the euro area, and the implementation of those decisions.
    • adopting the regulations and taking the decisions necessary to ensure the performance of the tasks assigned to the ESCB and the Eurosystem.

    Objectives of the Eurosystem

    The main objective of the Eurosystem is to maintain price stability. Without prejudice to this objective, the Eurosystem supports the general economic policies in the EU, such as full employment and sustainable economic development. The TFEU establishes a clear hierarchy of objectives for the Eurosystem, assigning priority to maintaining price stability. It also states that that objective is the most important contribution monetary policy can make to achieving a favourable economic environment and full employment.

    The TFEU’s provisions reflect the broad consensus that the benefits of price stability are substantial. Maintaining stable prices on a sustained basis is a crucial precondition for increasing economic welfare and the growth potential of an economy. One key aim of monetary policy in an economy is to maintain price stability. Monetary policy can affect real activity in the short run, but in the long run it can only influence the price level in an economy.

    The Treaty provisions also imply that, in the actual implementation of monetary policy decisions aimed at maintaining price stability, the Eurosystem also has to take into account the broader economic goals of the EU. In particular, given that monetary policy can affect real activity in the shorter term, the Eurosystem typically should avoid generating excessive fluctuations in output and employment if this is in line with the pursuit of its primary objective.

    Basic tasks of the Eurosystem

    According to the Treaty the basic tasks to be carried out through the Eurosystem are:

    • to define and implement the monetary policy for the euro area;
    • to conduct foreign-exchange operations;
    • to hold and manage the official foreign reserves of the Member States (portfolio management).
    • to promote the smooth operation of payment systems.

    In addition, on the basis of Article 127(6) of the TFEU and of the Council Regulation (EC) No 1024/2013, the ECB is responsible for specific tasks concerning the prudential supervision of credit institutions established in participating Member States. It carries out these tasks within a Single Supervisory Mechanism composed of the ECB and the national competent authorities.

    Further Eurosystem tasks

    The Eurosystem is also responsible for a number of additional tasks in the following fields:

    • Banknotes: the ECB and the NCBs of the countries which belong to the euro area are responsible for issuing euro banknotes in the EU.
    • Statistics: in cooperation with the NCBs, the ECB collects the statistical information it needs to fulfil its tasks, either from national authorities or directly from economic agents.
    • Financial stability and supervision: the Eurosystem contributes to the smooth conduct of policies pursued by the relevant authorities in matters relating to the prudential supervision of credit institutions and the stability of the financial system.
    • International and European cooperation: the ECB maintains working relations with relevant institutions, bodies and forums both within the EU and internationally in respect of tasks assigned to the ESCB.

    The objective of price stability

    The objective of price stability refers to the general level of prices in the economy and implies avoiding prolonged periods of both inflation and deflation.

    The ECB defines its price stability objective as “a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below, but close to, 2% over the medium term”.

    Price stability contributes to achieving high levels of economic activity and employment by:

    • improving the transparency of the price mechanism. In an environment of stable prices, it is easier for people to recognise changes in relative prices (i.e. prices between different goods), instead of being confused by widespread changes in the general price level when inflation is high. Consequently, they are able to make well-informed consumption and investment decisions and to allocate resources more efficiently;
    • reducing inflation risk premia in interest rates (i.e. the “compensation” that investors demand for any unexpected rise in inflation during the period of their investment). This reduces real interest rates and boosts incentives to invest;
    • rendering unnecessary unproductive activities aimed at hedging against the negative impact of inflation or deflation, e.g. holding on to goods in the expectation that their price may increase;
    • reducing distortions of inflation or deflation, which can exacerbate the distortionary impact on the economic behaviour of tax and social security systems;
    • and preventing an arbitrary redistribution of wealth and income as a result of unexpected periods of inflation or deflation.

    2

    Monetary policy of the Eurosystem

    Click on the link below for details on the ECB / Eurosystem’s monetary policy:

    For data on ECB interest rates:
    http://www.ecb.europa.eu/stats/monetary/rates/html/index.en.html

    For more on the monetary policy strategy:
    http://www.ecb.europa.eu/mopo/strategy/html/index.en.html

    3

    Factors determining price developments

    Click on the link below for details on factors determining price developments:

    For more on inflation: 
    http://www.ecb.europa.eu/ecb/educational/hicp/html/index.en.html

    For more on euro area data: 

    http://www.ecb.europa.eu/stats/keyind/html/index.en.html

    4

    Monetary policy instruments

    Monetary policy operates by steering short-term interest rates, thereby influencing economic developments, in the best possible way. The steering of short-term interest rates is carried out through the operational implementation of monetary policy. To this end, the Eurosystem has at its disposal a set of monetary policy instruments.

     

    Open market operations

    The most important monetary policy instrument is the open market operation, which serves to steer interest rates, manage the liquidity situation in the money market, and signal the monetary policy stance. Open market operations can be divided into the following four categories:

    • main refinancing operations with a weekly frequency and a maturity of one week;
    • longer-term refinancing operations with a monthly frequency and a maturity of three months;
    • fine-tuning operations, which are executed on an ad hoc basis and are aimed at managing the liquidity situation in the market and steering interest rates, in particular to smooth the effects on interest rates of unexpected fluctuations in market liquidity; 
    • and structural operations, which are carried out through the issuance of debt certificates, reverse transactions and outright transactions.

     

    Standing facilities

    The Eurosystem also offers standing facilities, which aim to provide and absorb overnight liquidity and set the boundaries for overnight market interest rates. The two standing facilities on offer are:

    • the marginal lending facility, which allows counterparties (i.e. financial institutions such as banks) to obtain overnight liquidity from the euro area national central banks against eligible assets;
    • the deposit facility, which can be used by counterparties to make overnight deposits with the euro area national central banks.

     

    Minimum reserves

    Finally, the Eurosystem requires credit institutions to hold minimum reserves on accounts with the euro area national central banks. The purpose of the minimum reserve system is to stabilise money market interest rates and create or enlarge a structural liquidity shortage.

    For more information on monetary policy instruments:
    https://www.ecb.europa.eu/mopo/implement/intro/html/index.en.html

    5

    Recent introductory statements

    You can see all the introductory statements on the ECB website:
    http://www.ecb.europa.eu/press/pressconf/2015/html/index.en.html

    The statements are ‘introductory’ as they precede the press conference at which the ECB’s Presidents explains the Governing Council’s monetary policy decision:
    http://www.ecb.europa.eu/press/tvservices/webcast/html/index.en.html

    6

    Non-standard monetary policy measures

    Non-standard monetary policy measures

    On account of the depth and length of the financial crisis, it would not have been possible to ensure price stability through standard monetary policy alone. The short-term interest rate was reduced to its effective lower bound, thereby reducing the potential for further rates cuts to support the economy. Indeed, even before the short-term interest rate became constrained in this way, the ECB needed to implement some of its non-standard monetary policy measures to address the serious disruptions in the transmission of its policy caused by the financial fragmentation of the euro area. Additional non-standard monetary policy measures have been introduced to expand the monetary policy stance in order to mitigate disinflationary risks. Overall, the combination of both standard monetary policy and the suite of non-standard monetary policy measures has ensured price stability in the euro area.

    The aim of the non-standard monetary policy measures introduced by the ECB, which are unprecedented in nature, scope and magnitude, is to fulfil the ECB’s primary objective of safeguarding price stability and to ensure an appropriate monetary policy transmission mechanism. These measures form part of the Eurosystem’s monetary policy implementation “toolbox” but are, by definition, exceptional and temporary in nature. They have been designed to provide liquidity to the banking sector, ease overall financial conditions and restore specific market segments and the bank lending channel. The banking sector is a particularly important channel for transmitting monetary impulses to euro area firms and households.

    The non-standard monetary policy measures include the following:

    • Liquidity and funding measures

    –      Fixed-rate tender procedure with full allotment

    –      Extension of the maturity of refinancing operations (three-year longer-term refinancing operations (LTROs) in November 2011)

    –      Expansion of the collateral pool

    •  Outright purchases in malfunctioning market segments

    –      Securities Markets Programme

    –      Covered bond purchase programmes

    –      Outright Monetary Transactions (September 2012)

    • Forward guidance (July 2013)
    • Credit easing and asset purchases (June 2014 to June 2016)

    –      Targeted longer-term refinancing operations (TLTROs)

    –      Asset-backed securities purchase programme

    –      Covered bond purchase programme

    –      Corporate sector purchase programme

    –      Expanded asset purchase programme

    On 22 January 2015 the ECB launched its expanded asset purchase programme. This programme added the purchase of sovereign bonds to the ECB’s existing private sector asset purchase programmes that had been launched towards the end of 2014 as a tool to help the ECB achieve its price stability mandate. The monthly asset purchases of €80 billion are intended to continue until the end of March 2017, or beyond if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.

    For more information on the APP:
    https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html

  • Glossary

    • A - B
    • C - D
    • E - F
    • G - H
    • I - J
    • K - L
    • M - N
    • O - P
    • Q - R
    • S - T
    • U - V
    • W - X
    • Y - Z

    Accession criteria
    The criteria (so-called Copenhagen criteria) that must be fulfilled by any country wishing to join the European Union. Included are political criteria (stable institutions guaranteeing democracy, the rule of law, human rights and respect for minorities), economic criteria (a functioning market economy) and the incorporation into national law of the acquis communautaire (the EU’s body of law).

     

    Accountability 
    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 citizens of Europe and, more formally, to the European Parliament. 

     

    Aggregate demand
    The total amount of goods and services demanded in an economy. It is estimated by statisticians.

     

    Aggregate demand curve 
    An illustration of all the goods and services that may be “demanded” (or consumed) by an economy in the course of a year.

     

    Aggregate supply 
    The total value of goods and services produced in an economy, plus the value of imported goods and services less the value of exports.

     

    Aggregate supply curve
    An illustration of all the goods and services that may be “supplied” (or produced) by an economy in the course of a year.

     

    Annual rate of inflation 
    T
    he change in the level of prices over the course of the previous year. It is usually expressed in relation to consumer prices.

     

    Asset 
    Any item of economic value owned by an individual or company that can be converted into cash, e.g. office equipment, real estate, financial assets etc.


    Base money (monetary base)
    Currency (banknotes and coins) in circulation plus the minimum reserves credit institutions are required to hold with the Eurosystem and any excess reserves they may voluntarily hold in the Eurosystem's deposit facility, all of which are liabilities on the Eurosystem's balance sheet. Base money is sometimes also referred to as the "monetary base".

     

    Bond 
    Governments and companies issue bonds in order to raise funds. Someone who buys a bond lends his money to the government or a company for a fixed period and receives a specific rate of interest each year.   

     

    Bond market
    The market for interest-bearing securities (with either a fixed or a floating rate and with a maturity of at least one year) that companies and governments issue to raise capital for investment. Fixed-rate bonds account for the largest share of this market.

     

    Broad money
    Comprises narrow money plus demand deposits and saving deposits issued by banks as well as other financial institutions.  Broad money also includes other non-cash components that are similar to deposits and can be converted into cash very easily.  Broad money is more closely associated with “money as a store of value”.

     

     

    Disclaimer: This glossary has been produced to help the participants of the Generation Euro Students’ Award. It has been compiled from various sources, including dictionaries and texts on basic economics. It does not necessarily reflect the views of the ECB.  If you have any comments on it or wish to make suggestions, please write to generationeuro@ecb.europa.eu

    Central bank
    A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. This control is the main tool for conducting monetary policy for a given area.     
    A central bank often also oversees the commercial banking system within a country's borders. A central bank is distinguished from a normal commercial bank because it has a monopoly on creating the currency of that nation, which is usually that nation's legal tender.

     

    Central bank independence
    In recent decades central banks have become increasingly independent of political pressures. Uncontrolled by governments, they can pursue their policy objectives, such as price stability, financial stability, and higher growth and employment, and they thus work for the long-term good of the economy. The independence of the European Central Bank, as well as the national central banks of the Eurosystem is guaranteed by law. Central banks now also manage their own resources and budgets.

     

    Central bank money
    Liabilities of a central bank, in the form of either banknotes or bank deposits held at a central bank, which can be used for settlement purposes.

     

    Collateral
    In the context of the Eurosystem, those assets that are pledged to the Eurosystem as security for its central bank credit operations. To be accepted, these assets must fulfil certain criteria, i.e. be "eligible".

     

    Commodity prices
    The price of a commodity, i.e. of a raw or primary product, such as energy products like gas or oil, agricultural products like sugar or coffee beans, or metals such as copper or aluminium.

     

    Communication
    Central bank communication is a key determinant in the market’s ability to anticipate monetary policy decisions and the future path of interest rates. For instance, well-constructed and well-explained monetary policies can influence the expectations of private agents, such as trade unions and employers.

     

    Confidence indicators
    Such indicators are survey-based indicators which seek to describe the underlying mood of consumers and businesses, and their willingness to spend and invest. Generally, changes in indicators of consumer confidence or investor confidence precede changes in real data, i.e., actual expenditures and investments.

     

    Consumer price index (CPI) see also Harmonised Index of Consumer Prices (HICP)
    A measure of changes over time in prices of consumption goods and services acquired or used by households.

     

    Consumer prices
    The prices of consumer goods. These are normally measured by using a consumer price index, which shows the change over time in the price of a basket of goods and services that would be bought by a typical consumer. Such an index is the main measure of inflation in the economy.

     

    Convergence criteria
    The four criteria that must be fulfilled by each EU Member State before it can adopt the euro, namely a stable price level, sound public finances (a deficit and a level of debt that are both limited in terms of GDP), a stable exchange rate and low and stable long-term interest rates. In addition, each EU Member State must ensure the compatibility of its national legislation, including the statutes of the national central bank, with both the convergence criteria and the Statute of the European System of Central Banks and of the European Central Bank (ECB).

     

    Cost-push inflation
    This is when the general level of wages and/or cost of raw materials and other production factors raises in a sustained manner and “pushes up” the price level.  For example, a sustained rise in oil prices may lead to an increase in inflation.

     

    Council of the European Union (EU Council)
    An EU institution made up of representatives of the governments of the Member States, normally the ministers responsible for the matters under consideration. The EU Council meeting in the composition of the ministers of economics and finance is often referred to as the "Ecofin Council". In addition, for decisions of particular importance, the EU Council meets in the composition of the Heads of State or Government (but should not be confused with the "European Council").

     

    Counterparty
    The opposite party in a financial transaction (e.g. any party transacting with a central bank).

     

    Credibility
    The quality of being believed or trusted. It is one of the main “assets” of a central bank.

     

    Credit institution
    An undertaking whose business is to receive deposits and other repayable funds from the public and to grant credit for its own account. Banks and savings banks are credit institutions.

     

    Credit to euro area residents
    A broad measure of the financing of the economy by various financial institutions (in particular banks). Credit includes loans to euro area residents, plus banks’ and other financial institutions’ holdings of securities issued by euro area residents. These include publicly quoted shares as well as debt securities. As a source of funds, securities are an alternative to loans, and as some loans can be securitised, “credit to euro area residents” offers a more precise indication of the total amount of financing provided by the monetary and financial (MFI) sector to the economy than a narrow definition comprising loans only.

     

    Currency 
    A generally accepted means of payment, such as money, which can be used in exchange for goods and services.

     

    Debt security
    Any debt issued by a government or a company that may be traded e. g. interest-paying bonds, notes, bills or money market instruments

     

    Deflation
    A decline in the general price level, e.g. in the consumer price index.

     

    Deflationary pressure
    Downward pressure on the general price level over a sustained period.  While periods of negative inflation can occur – for example, when the prices of some goods and services decline for a short period because of greater availability and/or lower costs of production – true deflationary pressures raise concerns when they become self-sustained: people defer consuming in expectation of ever lower prices, firms slow down the production of goods and services and lay off employees. A deflationary spiral may ensue.

     

    Delors Committee
    A committee mandated by the European Council in June 1988 to study and propose concrete stages leading to economic and monetary union and taking its name from that of its chairman, Jacques Delors (then President of the European Commission). The conclusions reached by the committee, published in the so-called Delors Report, were that economic and monetary union should be achieved in three stages.

     

    Demand-pull inflation
    This is when price levels rise because of an imbalance in the aggregate supply and demand. When the aggregate demand in an economy strongly exceeds the aggregate supply, prices increase.  

     

    Deposit facility
    A standing facility of the Eurosystem which counterparties may use to make overnight deposits at a national central bank. Such deposits are remunerated at a pre-specified interest rate. The interest rates on the deposit facilities normally provide a floor for the overnight market interest rate.

     

    Derivative 
    A financial instrument whose value depends on the value of one or more underlying assets, rates or indices.

     

    Dynamic processes
    When economic and financial relationships change over time (i.e. such relationships are not static).

     

     

    Disclaimer: This glossary has been produced to help the participants of the Generation Euro Students’ Award. It has been compiled from various sources, including dictionaries and texts on basic economics. It does not necessarily reflect the views of the ECB. If you have any comments on it or wish to make suggestions, please write to generationeuro@ecb.europa.eu.

    Ecofin Council    
    The EU Council meeting in the composition of the ministers of economics and finance.

     

    Economic agent 
    A person, company, or organisation that has an influence on the economy by producing, buying, or selling. Economists often talk about economic agents when they mean generic individuals that are representative of all average buyers, sellers, or investors.

     

    Economic analysis
    One of the two pillars of the European Central Bank’s framework for analysing the risks to price stability. These pillars form the basis for the Governing Council’s monetary policy decisions. The economic analysis focuses mainly on current economic and financial developments and the short to medium-term risks to price stability from the perspective of the interplay between supply and demand of goods, services and factor markets. It pays attention to the need to identify the nature of the shocks affecting the economy, their effects on cost and pricing behaviour, and how they propagate in the economy.  See also monetary analysis.

     

    Economic and Monetary Union (EMU)
    Economic and Monetary Union (EMU) represents a major step in economic integration in the EU. It has four major elements: the coordination of economic policy-making, the coordination of fiscal policies, the establishment of the European Central Bank, and the creation of the single currency. It entered its third and last stage on 1 January 1999. All Member States participate in EMU although not all have introduced the euro yet.

     

    Economic indicators
    Statistical data showing general trends in the economy.

     

    Economic model
    Modern economies can be very complex. Therefore economists often explain the functioning of markets (e.g. financial markets, oil markets etc.) or describe economic phenomena or even the whole economy in the form of a model (i.e. a set of equations and figures). Such models may, for instance, illustrate the behaviour of economic agents or movements in specific markets, or they may forecast economic trends or other factors.

     

    Economic outlook
    Expectations of how well the economy will perform during an upcoming quarter, year or other time period. When the economic outlook improves, households may be more inclined to spend and companies to invest.

     

    ECU    
    Acronym for “European Currency Unit”, a former unit of currency based on the composite value of the currencies of several countries which, now (together with others) form the European Union It functioned both as the reserve asset and accounting unit of the European Monetary System; replaced by the euro in 1999.

     

    Eligible assets (eligible collateral)
    Assets which can be used as collateral in order to obtain credit from the Eurosystem.

     

    Equilibrium 
    A certain price may lead to an equilibrium, for example, in the market for a commodity when the quantities demanded and supplied match. More generally, the concept of equilibrium applies also to complex economic and financial relationships and to a situation, i.e. an “equilibrium”, to which the economy would return even if a disruption or shock occurs (such as an oil price shock).

     

    Equities
    Securities representing ownership of a stake in a corporation, i.e. shares traded on a stock exchange (quoted or listed shares), unquoted or unlisted shares and other forms of equity. Equities usually produce income in the form of dividends.

     

    Equity market
    The market in which equities, i.e. stocks of quoted companies, are issued and traded. The most famous equity market is the New York Stock Exchange on Wall Street in New York City. 

     

    Euro
    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 encompassing the EU countries that use the euro as their currency and for which a single monetary policy is conducted by the Governing Council of the ECB. The area currently comprises Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.  

     

    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 interbank overnight market. It is calculated as a weighted average of the interest rates on unsecured overnight lending transactions denominated in euro, as reported by a panel of contributing banks.

     

    Eurogroup
    An informal gathering of the Finance Ministers of the euro area member countries, at which they discuss issues connected with their shared responsibilities in respect of the single currency. The European Commission and the ECB are invited to take part in the meetings.

     

    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.

     

    European Commission
    The EU institution established in 1967 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 Treaty on the Functioning of the European Union are applied in full.

     

    European Monetary Institute (EMI)
    A temporary EU body established on 1 January 1994 to strengthen central bank cooperation and monetary policy coordination in Stage Two of Economic and Monetary Union (EMU) and to carry out the preparations required for the establishment of the European System of Central Banks (ESCB), for the conduct of the single monetary policy and for the introduction of a single currency. It was replaced by the ECB on 1 June 1998.

     

    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, 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.

     

    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 members (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).

    Eurosystem
    The central banking system of the euro area. The Eurosystem comprises the ECB and the national central banks of those countries that have adopted the euro. The Eurosystem is governed by the Governing Council and the Executive Board of the ECB.

     

    Excessive deficit procedure
    The excessive deficit procedure is an action launched by the European Commission against any European Union Member State that exceeds the budgetary deficit ceiling imposed by the EU's Stability and Growth Pact. The procedure entails several steps, potentially culminating in sanctions, to encourage a Member State to get its budget deficit under control, a requirement for the smooth functioning of Economic and Monetary Union.

     

    Exchange rate
    Rate at which one currency may be exchanged for another.

     
    Exchange rate mechanism II (ERM II)
    Exchange rate mechanisms in Europe go back several decades. They aim to prevent excessive competitive devaluations and to support financial stability. ERM II was established on 1 January 1999. It links the currencies of EU non-euro area countries to the euro. It helps to ensure that exchange rate fluctuations between these currencies and the euro do not lead to economic instability within the single market. ERM II is often called the “antechamber” to euro adoption as it assists non euro-area countries in preparing for membership of the euro area. Although joining ERM II is voluntary, it is one of the convergence criteria for the eventual adoption of the euro.
    ERM II involves establishing both a central rate for the 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.

     

    Executive Board of the ECB
    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 the leaders of the euro area countries.

     

    Expectations of economic actors
    See inflation expectations.

     

    External trade prices
    The prices of goods and services that are imported and exported, measured as the export price index and the import price index (see also import price index)

     

    Financial asset
    Any asset that is i) cash; or ii) a contractual right to receive cash or another financial instrument from another enterprise; or iii) a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable; or (iv) an equity instrument (i.e., a stock).

     

    Financial intermediary
    A commercial entity (e.g. bank) that serves as an interface between lenders and borrowers, e.g. by collecting deposits from the general public and extending loans to households and businesses.

     

    Financial liability
    Any liability that is a legal obligation to deliver cash or another financial instrument to another enterprise or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable.

     

    Financial market
    Markets in which those who have a surplus of funds lend to those who have a shortage.

     

    Financial price
    The price of financial instruments, such as bonds or equities.

     

    Financial public sector accounts
    These are concerned with classifying, measuring and recording the transactions of the public sector.

     

    Financial stability
    This is when the financial system can maintain its basic function (to act as an intermediary between lenders and borrowers, and depositors and creditors) and is resilient to disruptions that may threaten its functions. When stable, the financial system as a whole – consisting of financial intermediaries, markets and market infrastructures – can withstand shocks, i.e. unpredictable and/or uncontrollable events, such as an interruption in oil supplies, severe weather, the unravelling of a financial imbalance or even a technological breakthrough.   

     

    Fiscal policy
    Fiscal policy has to do with the decisions governments take on spending, taxation and subsidies in order to influence the economy. Governments typically use fiscal policy to offer certain services to the public (such as education, security and roads), as well as to promote growth and redistribute income. Governments can also sell off public assets, e.g. buildings, land, and enterprises (a policy known as privatisation); they also borrow on financial markets by issuing public debt and sell licences (e.g., for telecommunications or for motorways). Changes in fiscal policy can influence macroeconomic conditions and also interest rates on public debt, among other things.  

     

    Foreign exchange operations
    The buying or selling of foreign exchange. In the context of the Eurosystem, this means buying or selling other currencies against euro.

     

    Foreign exchange reserves
    Deposits and securities in foreign currencies and gold, held by the central banks.

     

    Forward guidance
    Central banks’ forward guidance refers to a policy consisting of providing explicit statements on the conditional orientation of monetary policy with respect to the future path of policy interest rates. It aims to better align the expectations of economic actors with the central bank’s intended policy rate path.

     

     

    Disclaimer: This glossary has been produced to help the participants of the Generation Euro Students’ Award. It has been compiled from various sources, including dictionaries and texts on basic economics. It does not necessarily reflect the views of the ECB. If you have any comments on it or wish to make suggestions, please write to generationeuro@ecb.europa.eu.

    General Council of the ECB
    One of the decision-making bodies of the ECB. It comprises the President and the Vice-President of the ECB and the governors of the national central banks of all EU Member States.

     

    Governing Council
    The supreme decision-making body of the ECB. It comprises the President and the Vice-President of the ECB plus the other members of the Executive Board and the governors of the national central banks of those EU Member States whose currency is the euro.

     

    Government purchases
    Expenditures made in the private sector by all levels of government, such as when a government department hires a construction company to build office space or roads, or even office supplies.  

     

    Gross domestic product (GDP)
    A measure of economic activity, namely the value of an economy's total output of goods and services, less intermediate consumption, plus net taxes on products and imports, in a specified period. GDP can be broken down by output, expenditure or income components. The main expenditure aggregates that make up GDP are household final consumption, government final consumption, gross fixed capital formation, changes in inventories, and imports and exports of goods and services (including intra-euro area trade).

     

    Harmonised Index of Consumer Prices (HICP)
    Consumer price inflation in the euro area is measured by the Harmonised Index of Consumer Prices (HICP), which is used by the Governing Council to define and assess price stability in the euro area as a whole.

     

    Horizon
    Refers to a period of time. A short horizon constitutes a few months, while a longer-term horizon usually constitutes a few years.

     

    Households
    One of the institutional sectors in the European System of Accounts 2010 (ESA 2010). The household sector covers individuals or groups of individuals in their capacity as consumers, as well as entrepreneurs (i.e. sole proprietorships and partnerships). Non-profit institutions serving households are a separate institutional sector according to the ESA 95, although they are often reported together with households.

     

    Disclaimer: This glossary has been produced to help the participants of the Generation Euro Students’ Award. It has been compiled from various sources, including dictionaries and texts on basic economics. It does not necessarily reflect the views of the ECB. If you have any comments on it or wish to make suggestions, please write to generationeuro@ecb.europa.eu.

    Import price index
    An index that measures average changes in the prices of goods and services that are imported.

     

    Indicators
    Data which provide information about or predict economic developments or financial markets e. g. inflation, interest rates, employment, etc.

     

    Inflation
    An increase in the general price level, e.g. in the consumer price index.

     

    Inflationary pressure
    This refers to the demand and supply-side pressures that can cause a rise in the general price level. In the short term, inflationary pressure may, for instance, result from excess aggregate demand. In the medium to longer term, inflationary pressure is associated with high monetary growth.

     

    Inflationary trends
    Price developments over the longer term.

     

    Inflation expectations
    The rate of inflation that workers, businesses and investors think will prevail in the future, and that they will therefore factor into their decision-making.

     

    Inflation risk premium
    The “compensation” that investors demand for any unexpected rise in inflation during the period of their investment.

    Inflation targeting
    A monetary policy strategy aimed at maintaining price stability by focusing on deviations in published inflation forecasts from an announced inflation target.

     

    Input prices
    The prices of labour, raw materials and capital which are needed to produce goods and services. Generally when input prices increase, production is less profitable and supply may be reduced. Higher input prices may be offset by higher productivity.

     

    Interbank money market
    The market for short-term lending between banks, usually involving the trading of funds with a maturity of between one day (overnight or even shorter) and one year.

     

    Interest rate
    The cost of borrowing a sum of money over a certain period (e.g., the cost of a house mortgage per year). The amount of interest that must be paid on loans is generally expressed as a percentage per annum.

     

    Disclaimer: This glossary has been produced to help the participants of the Generation Euro Students’ Award. It has been compiled from various sources, including dictionaries and texts on basic economics. It does not necessarily reflect the views of the ECB. If you have any comments on it or wish to make suggestions, please write to generationeuro@ecb.europa.eu. 

    Key ECB interest rates
    The interest rates that reflect the stance of the monetary policy of the ECB and that are set by the Governing Council. The key ECB interest rates are: the interest rate on the main refinancing operations (the fixed rate in fixed rate tenders and the minimum bid rate in variable rate tenders); the interest rate on the marginal lending facility; and the interest rate on the deposit facility.

     

    Labour force
    Those in the working age population who can participate in the labour market. In other words, the sum total of persons in employment and those unemployed who are actively seeking work.

     

    Labour supply
    Availability of suitable human resources, i.e., workers, in a particular labour market.

     

    Liquidity
    This refers to how easily or quickly an investment can be converted into cash.

     

    Loans to euro area residents
    Loans granted to households, non-financial corporations and government. Loans to households can take the form of consumer credit (for the purchase of goods and services), lending for home buying and improvements and other lending (e.g. for debt consolidation, education).

     

    Long term
    A period of approximately five years or more, during which all factors of production and costs can adjust.

     

    Long-run neutrality (of money)
    This is a basic principle stating that, over the medium to long term, changes in the money supply only lead to changes in nominal variables. Therefore, long-term changes in the money supply have no effect on variables such real output, employment or real interest rates.

     

    Longer-term interest rates
    The rates of interest or the yield on interest-bearing financial assets with a relatively long period to maturity, for which the yield on government bonds with a maturity of ten years is often used as a benchmark.

     

    Longer-term refinancing operation
    A regular open market operation executed by the Eurosystem in the form of a reverse transaction. Longer-term refinancing operations are carried out through monthly standard tenders and normally have a maturity of three months.

     

    Disclaimer: This glossary has been produced to help the participants of the Generation Euro Students’ Award. It has been compiled from various sources, including dictionaries and texts on basic economics. It does not necessarily reflect the views of the ECB. If you have any comments on it or wish to make suggestions, please write to generationeuro@ecb.europa.eu.

    M1
    A “narrow” monetary aggregate that comprises currency in circulation and overnight deposits.

     

    M2
    An "intermediate" monetary aggregate that comprises M1 plus deposits with an agreed maturity of up to two years and deposits redeemable at notice of up to three months.

     

    M3
    A “broad” monetary aggregate that comprises M2 plus repurchase agreements, money market fund shares and units as well as debt securities with a maturity of up to two years. The Governing Council has announced a reference value for the growth of M3, which is at present 4½%. However, monetary policy does not react mechanically to deviations of M3 growth from the reference value.

     

    Macroeconomic projections
    Projections for macroeconomic developments. These are produced for the euro area by experts from the European Central Bank and the national central banks in the euro area on a quarterly basis. They are used by the Governing Council to assess economic developments and the risks to price stability.

     

    Macroeconomics
    This focuses on the economy as a whole and considers factors such growth, inflation and unemployment. It contrasts with microeconomics, which is the study of parts of an economy, e.g. industries, companies, households or consumers.

     

    Main refinancing operation
    A regular open market operation executed by the Eurosystem (in the form of a reverse transaction) for the purpose of providing the banking system with the amount of liquidity that the former deems to be appropriate. Main refinancing operations are conducted through weekly standard tenders (in which banks can bid for liquidity) and normally have a maturity of one week.

     

    Market expectations
    The way market participants see (and price in) future economic trends. An example would be the orders for durable goods over the coming quarter or expectations about real economic activity over 12-24 months.

     

    Market indicators
    A series of technical indicators used by traders or economists to predict the direction of the major financial indices

     

    Minimum reserves
    The minimum amount of reserves a credit institution is required to hold with a central bank. In the minimum reserve framework of the Eurosystem, the reserve requirement of a credit institution is calculated by multiplying the reserve ratio for each category of items in the reserve base by the amount of those items on the institution's balance sheet. In addition, institutions are allowed to deduct a lump-sum allowance from their reserve requirement.

     

    Monetary aggregate
    Currency in circulation plus outstanding amounts of certain liabilities of monetary financial institutions (MFIs) that have a relatively high degree of liquidity and are held by non-MFI euro area residents outside the central government sector.

     

    Monetary analysis
    One of the two pillars of the European Central Bank’s framework for analysing the risks to price stability. The pillars form the basis for the Governing Council’s monetary policy decisions. The monetary analysis helps to assess medium to long-term trends in inflation. The monetary analysis takes into account developments in a wide range of monetary indicators, including M3, its components and counterparts, notably credit, and various measures of excess liquidity. See also economic analysis.

      

    Monetary base see base money

     

    Monetary (money) growth
    An increase in the amount of money in the economy

     

    Monetary financial institution (MFI)
    Financial institutions which together form the money-issuing sector of the euro area. These include the Eurosystem, resident credit institutions (as defined in EU law) and all other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs and, for their own account (at least in economic terms), to grant credit and/or invest in securities. The latter group consists predominantly of money market funds.

     

    Monetary policy
    Monetary policy concerns the decisions taken by a central bank to influence the cost and availability of money in an economy. In the euro area, the most important decision in this respect relates to the key interest rate on the main refinancing operations. The Governing Council of the European Central Bank decides on the level of this rate once every six weeks. Any change it makes to the key rate affects in turn the interest rates that commercial banks charge their customers for borrowing money. In other words, the decision has an indirect impact on the cost and availability of money, and thus on consumer spending and business investment. Monetary policy ultimately affects the prices of goods and services.

    Monetary policy strategy
    The general approach to the conduct of monetary policy. The monetary policy strategy of the ECB comprises a quantitative definition of the primary objective of price stability and an analytical framework based on two pillars – economic analysis and monetary analysis – which forms the basis of the Governing Council's overall assessment of the risks to price stability and of its monetary policy decisions. It also provides the framework for explaining monetary policy decisions to the public.

     

    Monetary policy transmission mechanism
    The process through which monetary policy decisions, e.g. the interest rate decisions taken by the Governing Council in the case of the euro area, affect the economy in general and the price level in particular.

    Money
    An asset accepted by general consent as a medium of exchange. It may take, for example, the form of coins or banknotes or units stored on a prepaid electronic chip-card. Short-term deposits with credit institutions also serve the purposes of money. In economic theory, money performs three different functions: i) a unit of account; ii) a means of payment; and iii) a store of value. A central bank bears the responsibility for the optimum performance of these functions and does so by ensuring that price stability is maintained.

     

    Money demand
    A key economic relationship that represents the demand for money balances by non-monetary financial institutions (non-MFIs). The demand for money is often expressed as a function of prices and economic activity, which serves as a proxy for the level of transactions in the economy, and certain interest rate variables, which measure the opportunity costs of holding money.

     

    Money market
    The market in which short-term funds are raised, invested and traded, using instruments which generally have an original maturity of up to one year.

     

    Money stock
    Alternative term for money supply

     

    Money supply
    The total amount of money available in an economy at a specific time. It includes cash in circulation, various types of deposits and certificates of deposits.

     

    National central bank (NCB)
    A central bank of an EU Member State.

     

    Narrow money
    Covers highly liquid forms of money, such as coins, banknotes and traveller’s cheques as well as bank balances, which can immediately be converted into cash or used for cashless payments. It is a category of money more closely associated with “money as a means of exchange”.  

     

    Neutrality of money
    A basic economic principle stating that in the long run changes in the money supply only lead to changes in nominal variables, but not in real variables. Changes in the money supply will therefore have no long-term effect on variables such as real output, unemployment or real interest rates.

     

    Nominal interest rate
    Refers to the rate of interest before adjustment for inflation.

     

    Nominal output
    The current value of goods and services produced, for example, by a firm at current prices.  

     

    Nominal transaction
    When goods or services are traded in exchange for cash or electronic money.  

     

    Nominal wage
    Wages measured in terms of money paid by firms and received by workers (gross of taxes), not in terms of their purchasing power. Sustained growth in nominal wages can lead to higher production costs, a decline in competitiveness and higher inflation, unless it is matched by sustained productivity growth.

     

    Non-standard measures
    This refers to those monetary policy measures that are taken by a central bank to support the effective transmission of interest rate decisions to the wider economy at a time when the financial system is not functioning normally (e.g. during a crisis).

     

    Disclaimer: This glossary has been produced to help the participants of the Generation Euro Students’ Award. It has been compiled from various sources, including dictionaries and texts on basic economics. It does not necessarily reflect the views of the ECB. If you have any comments on it or wish to make suggestions, please write to generationeuro@ecb.europa.eu.

    Open market operation
    An operation executed on the initiative of the central bank in the financial market. With regard to their aims, regularity and procedures, Eurosystem open market operations can be divided into four categories: main refinancing operations; longer-term refinancing operations; fine-tuning operations; and structural operations. As for the instruments used, reverse transactions are the main open market instrument of the Eurosystem and can be employed in all four categories of operations. In addition, the issuance of debt certificates and outright transactions are available for structural operations, while outright transactions, foreign exchange swaps and the collection of fixed-term deposits are available for the conduct of fine-tuning operations.

     

    Output
    The amount of goods or services produced by a machine, factory, company, or an individual in a given period.

     

    Output gap
    The difference between the actual and potential levels of output of an economy, expressed as a percentage of potential output. Potential output is the level of output that can be achieved when the factors of production are utilised at non-inflationary levels.

     

    Overall output
    The complete set of goods and services generated by one or more machines, factories, companies, or individuals in a given period.

     

    Overnight deposits
    Deposits with next-day maturity. This instrument category comprises mainly those sight/demand deposits that are fully transferable (by cheque or similar instrument). It also includes non-transferable deposits that are convertible on demand or by close of business the following day. Overnight deposits are included in M1 (and hence in M2 and M3).

     

    Potential output
    Total gross domestic product (GDP) that could be produced by an economy if all its resources were fully employed without causing an economy to “overheat”, thereby generating inflationary pressures. People are constantly entering and leaving the labour market, businesses are constantly hiring (or firing) staff, and some businesses are starting up while others are closing, and thus it is not possible for everybody to be employed all the time. Due to various “frictions” (e.g. unemployed workers cannot find jobs or understaffed businesses cannot find workers), potential output is typically less than the theoretical maximum that could be produced if all inputs were used to their maximum capability.

     

    Price index
    Percentage number that shows the extent to which a price (or a “basket” of prices) has changed over a period (month, quarter, year) as compared with the price(s) in a certain year (base year) taken as a standard.

     

    Price level
    The average level of prices for things that people often buy. It is typically expressed using a price index.

     

    Price stability
    A situation in which prices are neither sharply rising nor falling. For the euro area the ECB aims to maintain inflation rates at levels below, but close to, 2% over the medium term. In fact, the main objective – and mandate – of the ECB and the national central banks in the euro area is to maintain price stability, i.e. to safeguard the value of the euro.

     

    Producer prices
    The prices charged by producers of goods. Developments in producer prices are typically not the same as consumer prices as there may be lags in the production of intermediate goods, changes in the margins charged by retailers and indirect taxation.

     

    Production function
    When firms produce goods and services by using various types of input such as machinery and equipment, labour, raw materials and intermediate inputs. For an economy as a whole, the aggregate production function entails all the labour, capital as well as other types of input that can contribute to a country’s GDP (i.e. the total value of goods and services produced in a year).

     

    Productivity
    A measure of the efficiency of a person, machine, factory, etc., in converting inputs into useful outputs, i.e. goods and services that can be traded. For example, the productivity of labour is the amount of goods and services (total output) per unit of labour (e.g., an hour of work).

     

    Purchasing power
    The value of money, as measured by the quantity and quality of products and services that it can buy.

     

    Disclaimer: This glossary has been produced to help the participants of the Generation Euro Students’ Award. It has been compiled from various sources, including dictionaries and texts on basic economics. It does not necessarily reflect the views of the ECB. If you have any comments on it or wish to make suggestions, please write to generationeuro@ecb.europa.eu.

    Quantity theory of money
    An economic theory which states that in the long term increasing the amount of money in the economy will eventually lead to a proportional rise in the prices of goods and services.

     

    Quick tender
    The tender procedure used by the Eurosystem for fine-tuning operations when it is deemed desirable to have a rapid impact on the liquidity situation in the market. Quick tenders are executed within a time frame of one hour and are restricted to a limited set of counterparties.

     

    Real GDP growth
    The nominal GDP growth rate adjusted for inflation and expressed as a percentage change.

     

    Real economy
    The part of the economy that focuses on the production and provision of goods and services.

     

    Real income
    The purchasing power of an individual or a household after taking into account the effects of inflation.

     

    Real interest rate
    The nominal interest rate minus the rate of inflation.

     

    Real output
    The quantity of goods and services produced.

     

    Real production 
    The market value of all production measured in constant prices, after adjusting for inflation.

     

    Real variable
    An economic variable expressed in constant units (such as the level of prices in a given year).

     

    Real wage
    Income of individual workers after taking into consideration the effects of inflation on their purchasing power. For example, if the nominal wage of an employee increases by 3% in a year when inflation is 2%, then the real wage has risen by 1%. 

     

    Real wealth
    Refers to the stock of mobile assets, such as financial assets, and immobile assets, such as houses, land or factories. As the prices of these assets can change, real wealth can rise or fall.

     

    Representative basket  
    A “basket” of goods and services typically purchased by a household. The evolution of the price of each item in such a basket determines the level of inflation affecting households (e.g. the consumer price index).   

     

    Reserve account
    An account with the national central bank on which a counterparty's reserve holdings are maintained. The counterparties' settlement accounts with the national central banks may be used as reserve accounts.

     

    Reserve base
    The sum of the eligible balance sheet items (in particular liabilities) that constitute the basis for calculating the reserve requirement of a credit institution.

     

    Reserve holdings
    Counterparties' holdings on their reserve accounts which serve to fulfil reserve requirements.

    Reserve ratio
    The ratio defined by the central bank for each category of eligible balance sheet items included in the reserve base. The ratios are used to calculate reserve requirements.

     

    Reserve-related liabilities
    Pre-determined and contingent short-term net drains on the Eurosystem, similar to reserve assets and other foreign currency assets of the Eurosystem.

     

    Reserves
    An amount set aside out of distributable profits, which is not intended to meet any specific liability, contingency or expected diminution in value of assets known to exist at the balance sheet date.

     

    Reverse transaction
    An operation whereby the central bank buys or sells assets under a repurchase agreement or conducts credit operations against collateral.

     

    Risk premium
    The “reward” that investors expect for holding a risky investment rather than a risk-free one.

     

    Disclaimer: This glossary has been produced to help the participants of the Generation Euro Students’ Award. It has been compiled from various sources, including dictionaries and texts on basic economics. It does not necessarily reflect the views of the ECB. If you have any comments on it or wish to make suggestions, please write to generationeuro@ecb.europa.eu.  

    Seigniorage    
    The net revenue derived from the issuing of currency, i.e. the difference between interest earned on securities acquired in exchange for banknotes and the costs of producing and distributing those notes.

     

    Shocks
    Changes in economic developments which are unexpected, such as financial market turmoil or natural disasters, or which are not unexpected but correspond to more structural, longer-lasting developments, such as technological breakthroughs and developments in food prices.

     

    Short term 
    A  period of approximately one or two years during which only some factors of production (such as raw materials) or variables (such as prices, expectations and interest rates) can change, but will not adjust completely because the period is too short.

     

    Short-term interest rates
    Interest rates on loan contracts or debt instruments, such as Treasury bills, bank certificates of deposit or commercial paper, with a maturity of less than one year. Often called money market rates.

     

    Single Euro Payments Area (SEPA)
    A process initiated by European banks and supported, inter alia, by the Eurosystem and the European Commission with a view to integrating retail payment systems and transforming the euro area into a true domestic market for the payment industry.

     

    Stability and Growth Pact
    The Stability and Growth Pact is a framework for coordinating fiscal policy between the EU Member States. The SGP includes a set of rules for fiscal policies in the Member States, including limits on government deficits and debt to ensure sound public finances. It is an important element of Economic and Monetary Union.

    Standing facility
    A central bank credit facility available to counterparties at their own initiative. The Eurosystem offers two overnight standing facilities: the marginal lending facility and the deposit facility.

    Sticky prices
    Prices that react slowly to market shortages or surpluses. Examples include nominal wages which are renegotiated annually or prices on a restaurant menu or in a catalogue which may be changed infrequently.

     

    Structure of the economy
    This refers to the relative importance of various sectors such as manufacturing, services and agriculture. In general, all economies in Europe now have large services sectors that include various sub-sectors such as financial services, transportation, entertainment and so on. They account for about 60-70% of the GDP of Europe’s economies. Manufacturing is also quite diversified and includes several types of industry, while the role of agriculture has gradually declined over the last century and now accounts for between 2-5% of GDP. There are other features distinguishing the structure of an economy, such as the capital intensity of a country, the degree of labour force participation, an economy’s relative openness, its capacity to innovate, etc.

    Supply of credit
    Provision of credits and loans to the real economy and households

     

    Systemic risk
    The risk that the inability of one participant to meet its obligations in a system will cause other participants to be unable to meet their obligations when they become due, potentially with spillover effects (e.g. significant liquidity or credit problems) threatening the stability of or confidence in the financial system. That inability to meet obligations can be caused by operational or financial problems.

     

    Targeted longer-term refinancing operations (TLTROs)
    In September 2014 the ECB started conducting a series of targeted longer-term refinancing operations (TLTROs), which aim to enhance the functioning of the monetary policy transmission mechanism by supporting bank lending to the real economy.

     

    Tender procedure
    A procedure in which the central bank provides liquidity to or withdraws liquidity from the market on the basis of bids submitted by counterparties in competition with each other. The most competitive bids are satisfied with priority until the total amount of liquidity to be provided or withdrawn by the central bank is exhausted.

     

    Transmission lag
    The time it takes for a short-term interest rate decision to have an impact on the interest rates of financial institutions and ultimately on price developments.

     

    Treaty of Lisbon
    The Treaty amending the Union’s two core treaties: the Treaty on European Union and the Treaty establishing the European Community; the latter being renamed the Treaty on the Functioning of the European Union. The Treaty of Lisbon was signed in Lisbon on 13 December 2007 and entered into force on 1 December 2009.

     

    Treaty on the Functioning of the European Union (TFEU)
    Following entry into force of the Treaty of Lisbon on 1 December 2009, the Treaty establishing the European Community was renamed the Treaty on the Functioning of the European Union (TFEU). This Treaty – referred to as the Treaty of Rome (signed in Rome on 25 March 1957) – entered into force on 1 January 1958 and established the European Economic Community (EEC). The Treaty establishing the European Community was subsequently amended by the Treaty on European Union (often referred to as the Maastricht Treaty) signed on 7 February 1992 and entering into force on 1 November 1993, thereby establishing the EU. Thereafter, both the Treaty establishing the European Community and the Treaty on European Union were amended by the Treaty of Amsterdam, signed in Amsterdam on 2 October 1997 and entering into force on 1 May 1999, the Treaty of Nice, signed on 26 February 2001 and entering into force on 1 February 2003, and then by the Treaty of Lisbon.

     

    Trend
    The general direction of economic developments, prices or interest rates etc.

     

    Two-pillar framework – the ECB’s approach to organising, evaluating and cross-checking the information relevant for assessing the risks to price stability, referred to as the “two pillars”: economic analysis and monetary analysis.

     

    Disclaimer: This glossary has been produced to help the participants of the Generation Euro Students’ Award. It has been compiled from various sources, including dictionaries and texts on basic economics. It does not necessarily reflect the views of the ECB. If you have any comments on it or wish to make suggestions, please write to generationeuro@ecb.europa.eu.

    Uncertainty
    The fact that projections for economic developments are subject to unforeseeable external events. The degree of uncertainty is higher in periods of economic crisis.

     

    Unemployed
    To be officially unemployed, a person must be out of work and actively seeking a job.

     

    Unemployment rate
    The number of unemployed people as a percentage of the labour force.

     

    Velocity of money
    The number of times money changes hands in the course of a year.

     

    Volatility
    The relative rate at which the price of an asset, or an economic indicator, moves up and down in a unit of time. The price of a frequently traded asset may be more volatile during daily trading than the price of a rarely traded asset. An increase in volatility is sometimes a sign of financial stress.

     

    Disclaimer: This glossary has been produced to help the participants of the Generation Euro Students’ Award. It has been compiled from various sources, including dictionaries and texts on basic economics. It does not necessarily reflect the views of the ECB.  If you have any comments on it or wish to make suggestions, please write to generationeuro@ecb.europa.eu

    Yield
    The income return on an investment. A yield curve shows the levels of interest rates at various maturities (e.g., one month, three months, 6-12 months and so on).

     

    Yield curve
    A curve describing the relationship between the interest rate or yield and the maturity at a given point in time for debt securities with the same credit risk but different maturity dates. The slope of the yield curve can be measured as the difference between the interest rates at two selected maturities.

     

    Disclaimer: This glossary has been produced to help the participants of the Generation Euro Students’ Award. It has been compiled from various sources, including dictionaries and texts on basic economics. It does not necessarily reflect the views of the ECB.  If you have any comments on it or wish to make suggestions, please write to generationeuro@ecb.europa.eu

TAKE THE

TRIAL VERSION

OF THE QUIZ

TAKE THE

TRIAL VERSION

OF THE QUIZ

TAKE THE

TRIAL VERSION

OF THE QUIZ

Facebook update