What does “below, but close to, two percent” mean? Assessing the ECB’s reaction function with real time data

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dc.contributor Bank of Finland
dc.contributor.author Paloviita, Maritta
dc.contributor.author Haavio, Markus
dc.contributor.author Jalasjoki, Pirkka
dc.contributor.author Kilponen, Juha
dc.date.accessioned 2017-10-05T10:58:22Z
dc.date.available 2017-10-05T10:58:22Z
dc.date.issued 2017
dc.identifier.isbn 978-952-323-188-7
dc.identifier.issn 1456-6184
dc.identifier.uri https://helda.helsinki.fi/bof/handle/123456789/14932
dc.description Päivitetty 13.11.2019.
dc.description Last revised: November 13, 2019.
dc.description.abstract We estimate the ECB’s monetary policy reaction function by using real time Eurosystem/ECB staff macroeconomic projection data, which are presented to the ECB’s Governing Council when it assesses the monetary policy stance in the euro area. Alternative specifications of the reaction function account for a possible credibility loss due to persistent deviations of past inflation from the ECB’s inflation target. The results provide support for two alternative interpretations of the definition of price stability. First, the ECB dislikes inflation rates above two percent more than rates below two percent. Second, the ECB policy responses to past inflation gaps are symmetric with respect to a target of 1.6 - 1.7 percent. The out-of-sample predictions of the reaction function based on the second interpretation of the definition of price stability track well an estimated shadow interest rate during the zero lower bound period.
dc.format.extent 26
dc.language.iso ENG
dc.rights https://helda.helsinki.fi/bof/copyright
dc.subject EKP
dc.subject reaktiofunktiot
dc.subject tavoitteet
dc.subject hintavakaus
dc.subject säännöt
dc.subject Taylorin sääntö
dc.subject uskottavuus
dc.subject eurojärjestelmä
dc.subject.other credibility
dc.subject.other inflation target
dc.subject.other monetary policy
dc.subject.other realtime projections
dc.subject.other Taylor rule
dc.title What does “below, but close to, two percent” mean? Assessing the ECB’s reaction function with real time data
dc.type Paper
dc.identifier.urn URN:NBN:fi:bof-201710051625
dc.subject.jel E52
dc.subject.jel E58
dc.series.name Bank of Finland Research Discussion Papers
dc.series.year 2017
dc.series.number 29/2017
dc.series.sortingnumber 0029
dc.date.publication 5.10.2017
dc.subject.yso inflaatio
dc.subject.yso rahapolitiikka
dc.subject.yso euroalue
dc.subject.yso hinnat
dc.description.publication Published in International Journal of Central Banking 2021 ; 17 ; 2 ; June
bof-internal.includedInCRIS 1
dc.type.okm D4

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