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How does the ECB target inflation?

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Author Info
Paolo Surico (Bocconi University)

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Abstract

The announced primary objective of the European Central Bank is price stability. While no restrictive reference is given to how the goal should be reached, such a mandate can be thought as a concern to stabilize some relevant macroeconomic aggregates. Accordingly, we frame ECB monetary policy in a general set up that allows policy makers to weight differently positive and negative deviations of inflation and output gaps. The empirical analysis on aggregated Euro area data indicates that ECB monetary policy can be characterized by a nonlinear policy rule. While the objective of price stability is symmetric, the one on real activity is not in that output contractions require larger policy responses. Moreover, the actual Euro interest rate highly commoves with the counterfactual rate that the Bundesbank would have followed if charged to set policy rates for the Euro area.

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Paper provided by EconWPA in its series Macroeconomics with number 0305005.

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Length: 33 pages
Date of creation: 07 May 2003
Date of revision:
Handle: RePEc:wpa:wuwpma:0305005

Note: Type of Document - ; pages: 33; figures: included. ECB working paper No 229
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Related research
Keywords: ECB monetary policy rule; (asymmetric) central bank policy preferences; Bundesbank counterfactual interest rate target;

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  3. Alex Cukierman & Anton Muscatelli, 2001. "Do Central Banks have Precautionary Demands for Expansions and for Price Stability?," Working Papers 2002_4, Department of Economics, University of Glasgow, revised Mar 2002. [Downloadable!]
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    Other versions:
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    Other versions:
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    Other versions:
  8. Surico, Paolo, 2003. "US Monetary Policy Rules: the Case for Asymmetric Preferences," Royal Economic Society Annual Conference 2003 199, Royal Economic Society. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yvonne Adema, 2004. "A Taylor Rule for the Euro Area Based on Quasi-Real Time Data," DNB Staff Reports (discontinued) 114, Netherlands Central Bank. [Downloadable!]
    Other versions:
  2. Ansgar Belke & Thorsten Polleit, 2006. "How the ECB and the US Fed Set Interest Rates," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 269/2006, Department of Economics, University of Hohenheim, Germany. [Downloadable!]
    Other versions:
  3. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2005. "How Do Monetary and Fiscal Policy Interact in the European Monetary Union?," NBER Working Papers 11055, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Ansgar Belke & Wim Kösters & Martin Leschke & Thorsten Polleit, 2005. "Back to the rules," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 268/2005, Department of Economics, University of Hohenheim, Germany. [Downloadable!]
  5. Fourçans, André & Vranceanu, Radu, 2006. "Is the ECB so special? A qualitative and quantitative analysis," ESSEC Working Papers DR 06004, ESSEC Research Center, ESSEC Business School. [Downloadable!]
  6. Kai Carstensen & Roberta Colavecchio, 2004. "Did the Revision of the ECB Monetary Policy Strategy Affect the Reaction Function?," Kiel Working Papers 1221, Kiel Institute for the World Economy. [Downloadable!]
  7. Gerberding, Christina & Worms, Andreas & Seitz, Franz, 2004. "How the Bundesbank really conducted monetary policy : An analysis based on real-time data," Discussion Paper Series 1: Economic Studies 2004,25, Deutsche Bundesbank, Research Centre. [Downloadable!]
  8. C. Moons & A. Van Poeck, 2008. "Does one size fit all? A Taylor-rule based analysis of monetary policy for current and future EMU members," Applied Economics, Taylor and Francis Journals, vol. 40(2), pages 193-199. [Downloadable!] (restricted)
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