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Policy rules and the inflation surge: The case of the ECB

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  • Tatar, Balint
  • Wieland, Volker

Abstract

This paper investigates the implications of monetary policy rules during the surge and subsequent decline of inflation in the euro area and compares them to the interest rate decisions of the European Central Bank. It focuses on versions of the Taylor (1993) and Orphanides and Wieland (2013) rules. Rules that respond to recent outcomes of HICP core or domestic inflation data called for raising interest rates in 2021—well ahead of the rate hikes of the ECB. Thus, simple outcome-based rules deserve more attention in the ECB's monetary policy strategy. Interestingly, the rules support the shift to policy easing in 2024.

Suggested Citation

  • Tatar, Balint & Wieland, Volker, 2025. "Policy rules and the inflation surge: The case of the ECB," Economics Letters, Elsevier, vol. 252(C).
    • Handle: RePEc:eee:ecolet:v:252:y:2025:i:c:s0165176525001752
    DOI: 10.1016/j.econlet.2025.112338
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    More about this item

    Keywords

    Monetary policy; Interest rates; European Central Bank; Taylor rule; Orphanides-Wieland rule; New Keynesian macro-epidemic models;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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