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A monetary policy strategy in good and bad times: lessons from the recent past
[Inflation persistence and price-setting behavior in the euro area – a summary of the IPN evidence]

Author

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  • Stephan Fahr
  • Roberto Motto
  • Massimo Rostagno
  • Frank Smets
  • Oreste Tristani

Abstract

We evaluate the ECB's monetary policy strategy against some of the underlying economic features of the eurozone, in normal times and during the financial crisis. We show that in the years preceding the crisis the ECB's emphasis on monetary indicators and deliberate avoidance of excessive activism were justified by the underlying macroeconomic conditions that the ECB faced in the eurozone and contributed to avoid more volatile patterns of inflation and economic activity. After the collapse of financial intermediation in late 2008, the strategy of the ECB was to adopt several non-standard policy measures. According to our quantitative evaluation of the impact of the main non-standard policies decided in October 2008 and in May 2009, which notably did not include entering commitments regarding the future path of the policy rate, such measures have significantly contributed to preserving price stability and forestalling a more disruptive collapse of the macroeconomy.— Stephan Fahr, Roberto Motto, Massimo Rostagno, Frank Smets and Oreste Tristani

Suggested Citation

  • Stephan Fahr & Roberto Motto & Massimo Rostagno & Frank Smets & Oreste Tristani, 2013. "A monetary policy strategy in good and bad times: lessons from the recent past [Inflation persistence and price-setting behavior in the euro area – a summary of the IPN evidence]," Economic Policy, CEPR;CES;MSH, vol. 28(74), pages 243-288.
  • Handle: RePEc:oup:ecpoli:v:28:y:2013:i:74:p:243-288.
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    File URL: http://hdl.handle.net/10.1111/1468-0327.12008
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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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