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Unveiling the ECB's Monetary Policy Behaviour Under Different Inflation Regimes

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  • Thanassis Kazanas
  • Elias Tzavalis

Abstract

type="main" xml:id="ecca12132-abs-0001"> This paper provides clear-cut evidence that the ECB follows an asymmetric monetary policy rule concerned more with inflation rather than sustaining economic growth. The driving force of interest rate cuts is the fall of the inflation rate below its target level. The paper evaluates the implications of the above policy on real activity by simulating a small New Keynesian model. This clearly indicates that the reaction of the ECB to negative output deviations and/or to financial stress conditions in the low inflation regime fails to reduce the adverse effects of negative demand and financial sector shocks on economic activity.

Suggested Citation

  • Thanassis Kazanas & Elias Tzavalis, 2015. "Unveiling the ECB's Monetary Policy Behaviour Under Different Inflation Regimes," Economica, London School of Economics and Political Science, vol. 82(328), pages 912-937, October.
    • Handle: RePEc:bla:econom:v:82:y:2015:i:328:p:912-937
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    File URL: http://hdl.handle.net/10.1111/ecca.2015.82.issue-328
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    Cited by:

    1. Christopoulos, Dimitris & McAdam, Peter & Tzavalis, Elias, 2018. "Dealing with endogeneity in threshold models using copulas: an illustration to the foreign trade multiplier," Working Paper Series 2136, European Central Bank.

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