Policy rules and the inflation surge: The case of the ECB

Balint Tatar and Volker Wieland

Economics Letters, 2025, vol. 252, issue C

Abstract: This paper investigates the implications of monetary policy rules during the surge and subsequent decline of inflation in the euro area and compares them to the interest rate decisions of the European Central Bank. It focuses on versions of the Taylor (1993) and Orphanides and Wieland (2013) rules. Rules that respond to recent outcomes of HICP core or domestic inflation data called for raising interest rates in 2021—well ahead of the rate hikes of the ECB. Thus, simple outcome-based rules deserve more attention in the ECB's monetary policy strategy. Interestingly, the rules support the shift to policy easing in 2024.

Keywords: Monetary policy; Interest rates; European Central Bank; Taylor rule; Orphanides-Wieland rule; New Keynesian macro-epidemic models (search for similar items in EconPapers)
JEL-codes: E42 E43 E52 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:252:y:2025:i:c:s0165176525001752

DOI: 10.1016/j.econlet.2025.112338

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