The Monetary Policy Strategy of the ECB

Monetary policy is an ongoing process, whose implications can only be understood in conjunction with the broad economic context and with the goals that policy itself is trying to achieve. Just as chess moves acquire meaning in succession, as part of the player’s overall game plan, so sequences of policy actions are linked together with the underlying circumstances and goals by a rigorous, although flexible, logical thread. From Lucas’ early contributions we learned that specific monetary policy actions have different impacts on economic agents depending on the overall policy framework according to which they are conducted. It is the monetary policy strategy — in short, the framework that a central bank uses to translate relevant information into actions and to publicly explain such actions — that really matters when it comes to affecting market expectations and, indirectly, economic behaviour and outcomes.