A Monetary Policy Strategy in Good and Bad Times: Lessons from the Recent Past

46 Pages Posted: 13 Apr 2013

See all articles by Stephan Fahr

Stephan Fahr

European Central Bank

Roberto Motto

European Central Bank (ECB)

Massimo Rostagno

European Central Bank (ECB)

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

Oreste Tristani

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2013

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.

Suggested Citation

Fahr, Stephan Alexander and Motto, Roberto and Rostagno, Massimo and Smets, Frank and Tristani, Oreste, A Monetary Policy Strategy in Good and Bad Times: Lessons from the Recent Past (April 2013). Economic Policy, Vol. 28, Issue 74, pp. 243-288, 2013. Available at SSRN: https://ssrn.com/abstract=2250231 or http://dx.doi.org/10.1111/1468-0327.12008

Stephan Alexander Fahr (Contact Author)

European Central Bank ( email )

Kaiserstr. 29
Frankfurt am Main, DE 60066
Germany

Roberto Motto

European Central Bank (ECB) ( email )

Kaiserstrasse 29
Postfach 16 03 19
D-60311 Frankfurt am Main
Germany

Massimo Rostagno

European Central Bank (ECB) ( email )

Kaiserstrasse 29
Postfach 16 03 19
D-60311 Frankfurt am Main
Germany
+49 69 1344 7663 (Phone)
+49 69 1344 7604 (Fax)

Frank Smets

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Oreste Tristani

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0049 69 1344 6000 (Fax)

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