How Does the ECB Target Inflation?

45 Pages Posted: 6 Jun 2003

See all articles by Paolo Surico

Paolo Surico

London Business School - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: May 2003


The announced primary objective of the European Central Bank is price stability. While no restrictive reference is given to how the goal should be reached, such a mandate can be thought as a concern to stabilize some relevant macroeconomic aggregates. Accordingly, we frame ECB monetary policy in a general set up that allows policy makers to weight differently positive and negative deviations of inflation and output gaps. The empirical analysis on aggregated Euro area data indicates that ECB monetary policy can be characterized by a nonlinear policy rule. While the objective of price stability is symmetric, the one on real activity is not in that output contractions require larger policy responses. Moreover, the actual Euro interest rate highly commoves with the counterfactual rate that the Bundesbank would have followed if charged to set policy rates for the Euro area.

Keywords: ECB monetary policy rule, (asymmetric) central bank policy preferences, Bundesbank counterfactual interest rate target

JEL Classification: E52, E58

Suggested Citation

Surico, Paolo, How Does the ECB Target Inflation? (May 2003). ECB Working Paper No. 229. Available at SSRN:

Paolo Surico (Contact Author)

London Business School - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR) ( email )

United Kingdom


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