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Lessons for monetary policy strategies from the recent past

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  • Stephan Fahr

    (European Central Bank)

  • Roberto Motto

    (European Central Bank)

  • Massimo Rostagno

    (European Central Bank)

  • Frank Smets

    (European Central Bank)

  • Oreste Tristani

    (European Central Bank)

Abstract

We evaluate the ECB’s monetary policy strategy against the underlying economic structure of the euro area economy, in normal times and in times of severe financial dislocations. We show that in the years preceding the financial crisis that started in 2007 the ECB’s strategy was successful at ensuring macroeconomic stability and steady growth. Emphasis on monetary indicators in the policy process - the monetary pillar of the ECB’s monetary policy strategy - was instrumental in avoiding more volatile and less predictable patterns of inflation and output growth. After the collapse of financial intermediation in late 2008, the strategy of the ECB was to preserve the integrity of the monetary policy transmission mechanism by adopting a comprehensive package of non-standard policy measures. The liquidity interventions decided in October 2008 and in May 2009 were critical to preserving price stability and forestalling a more disruptive collapse of the macroeconomy.

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Bibliographic Info

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This chapter was published in:

  • Marek Jarocinski & Frank Smets & Christian Thimann (ed.), 2011. "Approaches to monetary policy revisited - lessons from the crisis, 6th ECB Central Banking Conference, 18-19 November 2010," Books, European Central Bank, number cbc6, October.
    This item is provided by European Central Bank in its series Chapters with number cbc6-02.

    Handle: RePEc:ecb:chaptr:cbc6-02

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    Cited by:
    1. William R. White, 2012. "Ultra easy monetary policy and the law of unintended consequences," Globalization and Monetary Policy Institute Working Paper 126, Federal Reserve Bank of Dallas.
    2. Kotaro Ishi & Kenji Fujita & Mark R. Stone, 2011. "Should Unconventional Balance Sheet Policies Be Added to the Central Bank toolkit? a Review of the Experience so Far," IMF Working Papers 11/145, International Monetary Fund.
    3. Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2012. "The ECB and the interbank market," Working Paper Series 1496, European Central Bank.
    4. William R. White, 2013. "Is monetary policy a science? the interaction of theory and practice over the last 50 years," Globalization and Monetary Policy Institute Working Paper 155, Federal Reserve Bank of Dallas.
    5. Michael Joyce & David Miles & Andrew Scott & Dimitri Vayanos, 2012. "Quantitative Easing and Unconventional Monetary Policy – an Introduction," Economic Journal, Royal Economic Society, vol. 122(564), pages F271-F288, November.
    6. Kristóf Lehmann & Róbert Mátrai & György Pulai, 2013. "Measures taken by the Federal Reserve System and the European Central Bank during the crisis," MNB Bulletin, Magyar Nemzeti Bank (the central bank of Hungary), vol. 8(Special), pages 98-107, October.
    7. Kristóf Lehmann, 2012. "International experiences with unconventional central bank instruments," MNB Bulletin, Magyar Nemzeti Bank (the central bank of Hungary), vol. 7(2), pages 24-30, June.
    8. John Geanakoplos, 2011. "Panel Statement - Endogenous leverage and default," Chapters, European Central Bank.
    9. William R. White, 2013. "Is Monetary Policy a Science? The Interaction of Theory and Practice over the Last 50 Years," SUERF 50th Anniversary Volume Chapters, SUERF - The European Money and Finance Forum.

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