Role of European Central Bank in Conducting Monetary Policy for the Euro Zone - Assignment Example

 Task one: Short Literature Review In 2008, the world was plunged into a recession and this was caused by the housing bubble in the United States that spread to the rest of the world affecting the interlinked world financial system (Ackermann, 2008, p. 329). The United States subprime crisis is just one among many other financial crises that have caused massive havoc to the economy. The poor performance of the Euro is having drastic effects on a number of businesses and the economy of the European countries and thus monetary policies have to be implemented in order to save the Euro. According to Monaghan (2012), something needs to be done in order to save the Euro. A number of measures are present and could be implemented by European Central Bank. However, care has to be taken so as to avoid market disappointment as well as panic among investors. Monaghan (2012) proposes six monetary policy measures that can be implemented to save the Euro. First is Banking license, which would involve ECB granting a banking license for the European region permanent bailout fund. If this is implemented it would make it possible for ESM to borrow from the central bank and in so doing become a lender of last resort and help those countries in difficulties but which are essentially solvent. Morrison (2004: 559) argues that Banking license could be a way out in cases of credit difficulty but the impacts on the recipients could be disastrous in the long run and thus making it less favourable as a method of saving the Euro. The second measure is bond purchases which could happen by ECB buying bonds and this must be done on a large scale in order to make the desired impact and bring the costs of borrowing down (Richeldson & Richeldson, 2011). ECB has done in the past with minimal results being achieved. Scholars argue that the only way to ensure that the problem does not recur is to ensure that the bond buying is made permanent and unlimited so as to have an impact on the Euro. The third measure is quantitative easing which would be done such that ECB would buy bonds across the region with funds that are newly created thus causing a monetary stimulus. Lenza (2010: 256) argues that there are a number of monetary measures for exceptional times and quantitative easing is a good measure to save the Euro at this time. The fourth measure is a liquidity boost in order to allow more money to circulate in the economy. This as a measure is only good in the short term as increased liquidity could lead to inflation and thus care has to be taken while using this approach (Chadha, Corrado and Sun, 2010). The fifth approach is lowering interest rates and this could see increased borrowing to support the underperforming Euro. However, going by previous measures this would not be a good option as it mounts to playing around the edges and failing to address the real problem (Tavlas et al., 2000, p. 15). Lastly is a combination of the above measures. Literature points to a variety of measures to help save the Euro. However, the implementation of any of the above mentioned measures is subject to several factors that will affect individual countries. The literature does not point to a specific measure which is seen as best but views all of these measures as appropriate in different circumstances and thus there use should be subject to contextual factors. Task Two Grix (2001:26) defines Ontology as the “ the image of social reality upon which theory is based- i.e. the ‘claim and assumptions that are made about the nature of social reality, claims about what exists, what it looks like, what units make it up and how those units interact with each other.” Ontology assumptions in general are what we believe as constituting social reality. Ontology is viewed from two approaches: objectivism and constructivism. The former is a position that stresses that social phenomenon and their meanings are independent of the social actors (Kothari, 2006). The constructivism on the other hand affirms that social phenomena and their meanings are dependent such that they are continually being produced by social actors (Creswell, 2003, p. 52). Grix (2001:27) says that epistemology is concerned with “the theory of knowledge, especially with regards to its methods, validation and the possible ways of gaining knowledge of social reality…” Epistemology is composed of two positions or approaches: positivism and interpretivism. The former advocates for the use of the methods of natural sciences to study social reality (Sharp et al., 2002, p. 43) while the latter, deals with the use of a strategy that acknowledges the differences between people and objects and requires the use of methods that take care of the subjective meanings of social action (Babbie, 2010, p. 50). My ontological view is based on the constructivism approach that centres on the interaction between social phenomena and their meanings. Therefore the research is built on the ability of social actors to change phenomena and situations and affect the outcome of an event. Social actors are continuously evolving and things are always changing and thus it is only practical to view things from the constructivism perspective as social phenomena do not operate in isolation and thus meaning needs to be constructed from action. The epistemological position is based on the positivism approach that advocates for the use of methods of natural sciences in studying social reality. Therefore, research design used in this research is an investigation that will comprise of a detailed search of literature and evidence using both qualitative and quantitative methods in trying to answer the research question. A case study will thus be an appropriate method in trying to understand the situation as it will bring to use a number of qualitative and quantitative research instruments that will be effective in answering the research question. Task 3 Semi structured interviews are composed of a series of predetermined questions that are relevant for a given field or study of interest and which are administered a given number or sample of the population with an aim of eliciting responses which are broad in nature building on variables, factors and attributes for analysis. Semi structured interviews put together the essentials of the unstructured, open ended interviews with a focussed survey instrument and thus generate focussed, qualitative and textual data (Denscomber, 2007, p. 111). The very nature of semi structured interviews makes them flexible in that the questions are predetermined by the interviewer in order to answer a given research question or hypothesis. However, the important factor and one which gives the semi structured interviews an advantage over other survey instruments is the ability of the interviewer to probe in order to get more information from the interviewee (Schensul, Schensul and LeCompte, 2000, p. 149). Amidst the many advantages of using the semi structured interviews is the one disadvantage: the method uses a few people and thus it is criticised for not being representative. Semi structured interview questions 1. What are some of the monetary measures that the ECB has used in the past to save the Euro? 2. Which among the identified monetary intervention measures mentioned above have been successful and what led to their success? 3. What is the likely scenario in the event that the Euro is not saved from the downward trend in terms of performance? 4. To what percentage do you think the economy of the region grow given the downward trend of the Euro? 5. What can investors and other players in the market do to help the ECB in its struggle to save the Euro? The aim of the first question is to try and find out what the ECB has been using in the past in order to establish the likely measure the central bank could adopt to help save the Euro. This is a critical question because it would be appropriate to try and establish what has been used in the past in order to identify the best approach that could be adopted. The second question tries to build on the first by providing information on what worked and how it worked giving the various conditions that were present at that time that made the measure work. It is important because it will help decide on the best strategy to use in a given set of conditions. Using semi structured interviews will generate a lot of information that may not have been possible if questionnaires were used. This is because questionnaires do not allow the interviewer to probe as is the case with semi structured interviews. Task four As explained in task two, this research will follow the constructivism perspective and thus will look at the way meanings are constructed by social actors. It will also follow the positivism approach that advocates for the use methods of natural sciences in trying to study social reality. Therefore a case study was chosen as the most appropriate research method to be used in investigating the role of the ECB in conducting monetary policy for the euro zone. A case study uses both qualitative and quantitative methods of data collection that ensures that the phenomenon under study is thoroughly understood (Goddard & Melville, 2007, p. 6). In this case semi-structured interviews will also be used in trying to understand the research question. The semi structured interviews will thus generate in depth information that is crucial to understanding the research question identified in the study (Kumar, 2008, p. 45). There are other methods that can also be used apart from the case study and these include: focus group discussion and in depth interviews. Focus group discussion is a method that brings together a number of respondents that discuss a subject of mutual interest. The group size is usually small and is picked specifically because of their ability to inform the study (Parker & Tritter, 2006, p. 46). The group is usually small because of the fact that it is aimed at making the people feel free and express their opinions in a manner that people will not feel intimidated by the discussion. Such a discussion is built on the ability of the participants to provide information freely in order to gather as much as possible from the information that is held by people on a given issue. The research therefore comes up with atopic guide that will be used to guide the discussion in such a way that the discussion will stick to the intended objectives to avoid derailing the whole process (Lane et al., 2001, pp.56-59). The guide is also made in order to ensure that a range of aspects as concerns the topic are covered and nothing is left behind. Sometimes, the discussion is recorded and then analysed later. There are many advantages of using focus group discussions and the major one is the ability of the researcher to get as much information as possible from the respondents (Lucasey, 2000, p. 55). The participants can be asked to talk about the topic freely thus exhausting all they know about it. The disadvantage with this is that a small number of people are usually selected to participate in the study and thus the results may not be representative of the total population. Focus group discussions are also time consuming and require an environment that is supportive where all participants can talk freely about the problem in question or else no meaningful information will be gathered (Parker & Tritter, 2006, p. 48). In depth interviews are conducted in order to get information from a group of people on a given topic affecting them. The respondents to such interviews are people who may or may not have information as regarding the topic as the people are usually chosen depending on the sampling criteria used in the study. In depth interviews make use of probing and open ended questions in order to elicit as much information as possible from the research participants or the interviews for that matter. Interviews generally are used in gathering qualitative data (Denscomber, 2007, p. 56). However, the data can be analysed quantitatively in answering a given research question. There are many advantages of using in depth interviews as a research method and one of them is that due to the nature of the interviews themselves, a lot of data can be gathered in the process making it very useful in situations where a lot of information is desired in a given study. Surveys employ in-depth interviews because of this advantage. The disadvantages is that in-depth interviews are very difficult to set up because they are expensive, people require motivation in order to participate in the interviews and also they are time consuming and thus require enough time to conduct them (Kothari, 2006, p. 81). This research will thus benefit a lot from the above two methods because of the ability of the methods to generate a lot of information that will inform the study and secondly because of the ability of the two methods to exhaustively answer the research question. The two are valid research methods that can be used in understanding phenomena in the real world as required by the epistemological approach. List of References Ackermann, J. (2008). The Subprime Crisis and Its consequences. Journal of Financial Stability, 4(4), 329-337. Babbie, E. R. (2010). The Practice of social research. New York: Cengage Learning. Chadha, J., Corrado:, L., & Sun, Q. (2010). Money and liquidity effects: seperating demand from supply. Journal of economic Dynamics and Control, 34(9), 1732-1747. Creswell, J. W. (2003). Research design: qualitative, quantitative and mixed method approaches. London: Sage publications. Denscomber, M. (2007). The Good Research Guide. London: Mcgraw Hill International. Goddard, W., & Melville, S. (2007). Research methodology: An Introduction. Cape Town: Jutaonline. Grix, J. (2001). Demystifying Postgraduate Research. New York: Continuum International Publishing. Kothari, C. R. (2006). Research Methodology: Methods and Techniques. New Delhi: New Age international publishers. Kumar, R. (2008). Research Methodology. New Delhi: APH Publishing. Lane, P., Mckenna, H., Assumpta, A. R., & Fleming, P. (2001). Focus group methodology. Nurse Researcher, 8(3), 45. Lenza, M. (2010). Economic policy. Economic Policy, 25(62), 295. Lucasey, B. (2000). Qualitative research and focus group methdology. Orthopaedic nursing, 19(1), 54. Monaghan, A. (2012, August 01). Debt crisis: What could the ECB do to save the euro? Retrieved August 13, 2012, from The Telegraph: http://www.telegraph.co.uk/finance/financialcrisis/9444699/Debt-crisis-What-could-the-ECB-do-to-save-the-euro.html Morrison, A. D. (2004). Banking Licenses , Bailouts and the regulator ability. Scottish Journal of Political Economy, 51(4), 559-579. Parker, A., & Tritter, J. (2006). Focus Group method and methodology: Current Practice and recent Debate. International Journal of Research and Method Education, 29(1), 23-37. Richeldson, H., & Richeldson, S. (2011). 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