THE INSTITUTIONAL FRAMEWORK AND EVOLUTION OF EUROZONE MONETARY POLICY

Abstract

The Eurozone's monetary policy, governed by the European Central Bank (ECB), aims to maintain price stability through a unified framework targeting inflation below but close to 2%. Key features include the separation principle, distinguishing monetary policy from financial stability measures, and the increasing importance of fiscal-monetary coordination in low-rate environments. The ECB uses tools such as Quantitative Easing and adjusted interest rates to respond to economic shocks, most notably during the COVID-19 crisis. However, structural limitations - like constrained fiscal policy and the zero lower bound - have challenged the ECB's effectiveness. Recent reforms to its operational framework reflect efforts to adapt as the Eurosystem’s balance sheet normalizes, ensuring flexibility in a diverse economic union.