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ECB policy and strategy review: Potential improvements

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  • Wieland, Volker
  • Hegemann, Hendrik

Abstract

The euro area experienced an unprecedented surge of inflation in 2021 and 2022 followed by a decline in 2023 and 2024. The ECB raised policy rates too late. Simple rules would have prescribed an earlier response. The policy easing since summer 2024, however, is quite in line with such rules. This experience provides a number of lessons that could lead to improvements in the policy strategy that is currently under review. The current level of policy rates appears appropriate. However, there are some important upside risks to inflation. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 20 March 2025.

Suggested Citation

  • Wieland, Volker & Hegemann, Hendrik, 2025. "ECB policy and strategy review: Potential improvements," IMFS Working Paper Series 224, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    • Handle: RePEc:zbw:imfswp:333884
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    References listed on IDEAS

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    1. Tatar, Balint & Wieland, Volker, 2024. "Taylor Rules and the Inflation Surge: The Case of the Fed," CEPR Discussion Papers 18910, C.E.P.R. Discussion Papers.
    2. Philipp Hartman & Frank Smets, 2018. "The European Central Bank’s Monetary Policy during Its First 20 Years," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(2 (Fall)), pages 1-146.
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