The ECB strategy: The 2021 review and its future




The CEPR Report "The ECB strategy: The 2021 review and its future"

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From the CEPR website:


The European Central Bank’s (ECB) recent strategy review, wide-ranging in scope and ambition, signals an important shift to ensure that its monetary policy is fit for purpose. But as a new CEPR/London Business School/AQR report by stellar academic economists explains, while the review has moved the ECB in the right direction, it leaves some key issues to be addressed.


The report focuses on the definition of the ECB’s inflation target, its operational framework, fiscal and monetary policy interactions, and the implications for monetary policy of climate change and related mitigation initiatives. The authors identify topics to be addressed in future strategic reviews and provide a framework as a basis for this analysis.


Written by Lucrezia Reichlin, Klaus Adam, Warwick J. McKibbin, Michael McMahon, Ricardo Reis, Giovanni Ricco and Beatrice Weder di Mauro, this report provides a clear framework for discussing both the changes to strategy proposed in the current review and the future evolution of the strategy.


The authors highlight notable developments, including the setting of a symmetric inflation target, broadening of the operational framework, a greater focus on understanding the implications of the relationship between monetary and fiscal policy, and incorporation of climate change considerations into its monetary policy.


The report provides a critical analysis of the likely effects of these developments on Europe’s economy and the implications for the future role of the ECB. But it also stresses that it remains to be seen whether new monetary policy strategy will successfully accommodate the challenges it has set out to meet.