ABSTRACT
When the European Central Bank (ECB) started to think about how to conduct monetary policy for what has since become the euro area, it faced extraordinary challenges. This chapter discusses the key elements of the ECB's monetary policy strategy, namely the framework for internal analysis and decision-making, which encompasses the ECB's economic and monetary analysis. With particular regard to the role of money and the ECB's medium-term orientation, the extent to which this approach differs from inflation-targeting strategies is considered. The chapter also discusses the considerations underlying the quantitative definition of price stability, such as the trade-off between the costs related to inflation and reasons for tolerating small positive rates of inflation. It describes the approach to communicating with the markets and the wider public. Since the ECB's inception, the institutional framework for securing a stable European currency and lasting economic success has proved itself in practice.
