Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/303512 
Year of Publication: 
2024
Series/Report no.: 
IMFS Working Paper Series No. 209
Publisher: 
Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS), Frankfurt a. M.
Abstract: 
This paper investigates the implications of monetary policy rules during the surge and subsequent decline of inflation in the euro area and compares them to the interest rate decisions of the European Central Bank (ECB). It focuses on versions of the Taylor (1993) and Orphanides and Wieland (OW) (2013) rules. Rules that respond to recent outcomes of HICP Core or domestic inflation data called for raising interest rates in 2021 and well ahead of the rate increases implemented by the ECB. Thus, such simple outcome-based policy rules deserve more attention in the ECB's monetary policy strategy. Interestingly, the rules support the recent shift of the ECB to policy easing. Yet, they add a note of caution by suggesting that policy rates should not decline as fast as apparently anticipated by traded derivative-based interest rate forecasts.
Subjects: 
Monetary policy
interest rates
European Central Bank
Taylor rule
OrphanidesWieland rule
New Keynesian macro-epidemic models
JEL: 
E42
E43
E52
Document Type: 
Working Paper

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