Monetary policy strategies to navigate post-pandemic inflation: an assessment using the ECB’s New Area-Wide Model

Matthieu Darracq Paries, Antoine Kornprobst and Romanos Priftis

No 2935, Working Paper Series from European Central Bank

Abstract: We evaluate how the euro area economy would have performed since mid-2021 under alternative monetary policy strategies. We use the ECB’s workhorse estimated DSGE model and contrast actual policy conduct against alternative strategies which differ in their ”lower-for-longer” commitment as well as policymaker preferences regarding inflation and output volatility. Assuming that the monetary authority had full knowledge of prevailing conditions from mid-2021 onwards, the alternative policy strategies would call for anticipated timing of the start of the hiking cycle: earlier tightening would prevent inflation from peaking at 10%, but the forceful tightening since 2022:Q3 prevented higher inflation from becoming entrenched. However, once evaluating monetary policy on real-time quarterly vintages of incoming data and projections, the alternative interest rate paths would be broadly consistent with the observed policy conduct. The proximity of some benchmark optimal policy counterfactuals with the baseline, brings further indication that the actual policy conduct succeeded in implementing an efficient management of the output-inflation trade-off. JEL Classification: C53, E31, E42, E52, E58

Keywords: dual mandate; estimated DSGE model; euro area; monetary policy frameworks; optimal policy (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-eec and nep-mon
Note: 604093
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2935~639250ee2b.en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20242935

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().