Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/333391 
Authors: 
Year of Publication: 
2025
Series/Report no.: 
Discussion Paper No. 2025/9
Publisher: 
Freie Universität Berlin, School of Business & Economics, Berlin
Abstract: 
This paper investigates how the ECB's monetary policy affects consumers' perceptions about the credibility of the inflation target. Monetary policy is assessed by the gap between the actual policy rate and a Taylor rate to approximate the interest rate expected by the public. Drawing on survey data for German consumers from 2019 to 2024, we find that the ECB's interest rate policy contributes significantly to the credibility of the inflation target. In particular, the massive dent in inflation target credibility observed from 2021 to the end of 2023 could have been ameliorated by an earlier and more decisive tightening of monetary policy. This suggests that simple outcome-based Taylor rules may deserve more attention in the communication of the ECB's monetary policy strategy.
Subjects: 
Credibility of Inflation Targets
Consumer Inflation Expectations
European Central Bank
Taylor Rules
JEL: 
E43
E52
E58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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