Browsing by Subject "euro area monetary policy"

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  • Bank of Finland (2017)
    Bank of Finland. Bulletin 4/2017
    Euro area monetary policy has provided the economy with strong support in recent years. Many traditional guidelines used for evaluating the policy stance, such as the Taylor rule, would call for a more restrictive form of monetary policy. However, a number of variations can be derived from the relatively simple base formula underlying the Taylor rule, providing alternative paths for benchmark interest rates. Thus we could argue that recent monetary policy has not, in fact, significantly deviated from interest rate paths that are consistent with variations of the Taylor rule. The economy has recently undergone changes that provide justification for the more accommodative policy stance. Thus, monetary policy cannot solely be determined on the basis of simplistic rules.
  • Vilmi, Lauri (2017)
    BoF Economics Review 1/2017
    We estimate the long-term natural rate of interest for the euro area with two specifications of a simple semi-structural macroeconomic model. The estimates provide competing interpretations for the euro area’s current economic environment of weak growth, subdued inflation and exceptionally low nominal interest rates. In our first estimation, the current state of economy is attributed to persistent, recurring negative shocks to the output gap that restrain growth even when expansionary monetary policies are applied. The second estimation suggests that a large drop in the natural rate of interest is the problem, because, even with interest rates held close to zero, policy actions have not been able to revive the economy after major shocks in 2008, 2012 and 2016. As both views may explain some of the observed trends, the task of teasing out the drivers of current conditions and future trends is non-trivial. Nevertheless, policymakers should pay attention to both stories as they have quite different endings.