The ECB’s New Monetary Policy Strategy

Peter Hennecke ()
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Peter Hennecke: FOM Hochschule für Oekonomie & Management

Intereconomics: Review of European Economic Policy, 2021, vol. 56, issue 5, 295-298

Abstract: Abstract The ECB updated its monetary policy strategy for the first time in 18 years in July 2021. Therein, the ECB announced that it is willing to accept a transitory period of moderate inflation overshoot in its efforts to push inflation upwards after a long period of undershooting its target. This study explores whether such an overshoot can be economically justified employing a simple Phillips curve model. The results point to the conclusion that the average inflation rate over the business cycle consolidated about one percentage point below the ECB’s target rate. A temporary asymmetry of the ECB’s monetary strategy seems therefore justified to realign inflation and inflation expectations with the target rate.

Date: 2021
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DOI: 10.1007/s10272-021-1002-9

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