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Inflation target credibility and the Taylor rule

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  • Dieter Nautz

Abstract

We investigate how the monetary policy of the European Central Bank affects consumers' perceptions about the credibility of the inflation target. Monetary policy is assessed by the gap between the actual policy rate and a Taylor rate to approximate the interest rate expected by the public. Drawing on survey data for German consumers, our results suggest that the massive dent in inflation target credibility observed from 2021 to 2023 could have been ameliorated by a more decisive tightening of monetary policy. Therefore, simple outcome‐based interest rate rules may deserve more attention in the communication of monetary policy.

Suggested Citation

  • Dieter Nautz, 2026. "Inflation target credibility and the Taylor rule," Contemporary Economic Policy, Western Economic Association International, vol. 44(3), pages 689-697, July.
    • Handle: RePEc:bla:coecpo:v:44:y:2026:i:3:p:689-697
    DOI: 10.1111/coep.70028
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    References listed on IDEAS

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    1. Carola Binder, 2020. "Coronavirus Fears and Macroeconomic Expectations," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 721-730, October.
    2. Coleman, Winnie & Nautz, Dieter, 2025. "Asymmetric inflation target credibility," CFS Working Paper Series 731, Center for Financial Studies (CFS).
    3. Winnie Coleman & Dieter Nautz, 2023. "Inflation Expectations, Inflation Target Credibility, and the COVID‐19 Pandemic: Evidence from Germany," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(7), pages 1937-1953, October.
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