What Determines the Success of the ECB's Monetary Policy

Milutin Ješić and Hans Manner ()
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Hans Manner: University of Graz, Austria

No 2024-17, Graz Economics Papers from University of Graz, Department of Economics

Abstract: The European Central Bank (ECB) adopted a new monetary policy strategy in July 2021 to replace the previous one that had been in place since 2003. This study implicitly analyzes the performance of the previous strategy in achieving price stability by identifying the key macroeconomic determinants that influence inflation dynamics. Methodologically, we apply the nonstationary ordered probit model, which allows the estimation of marginal effects of covariates on the probability of the inflation rate being below, in, or above the assumed targeted range. The results indicate that the crucial determinants of deviation in the inflation rate from the targeted range are fundamental macroeconomic variables, of which some are indirectly under control of the ECB. While the inflation rate has occasionally deviated from the targeted range, the overall conclusion is that the performance of the ECB in fulfilling the primary goal defined in the monetary policy strategy is still manageable to the extent that it can influence some of the factors that are identified as drivers of inflation dynamics.

Keywords: ECB; monetary policy; monetary policy strategy; nonstationary ordered probit model; inflation. (search for similar items in EconPapers)
JEL-codes: C25 C54 E31 E52 E58 (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
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