1. Home
  2. Studies
  3. Is the European Central Bank’s Monetary Policy Still Appropriate?
Markus Demary / Michael Hüther IW-Trends No. 1 3. April 2018 Is the European Central Bank’s Monetary Policy Still Appropriate?

The monetary policy of the European Central Bank is under fire from two sides. While one side regards the ECB’s monetary policy as too expansionary, the other holds it responsible for keeping the measured inflation rate below target.

Download PDF
Is the European Central Bank’s Monetary Policy Still Appropriate?
Markus Demary / Michael Hüther IW-Trends No. 1 3. April 2018

Is the European Central Bank’s Monetary Policy Still Appropriate?

Download PDF

Share this article:

or copy the following link:

The link was added to your clipboard!

The monetary policy of the European Central Bank is under fire from two sides. While one side regards the ECB’s monetary policy as too expansionary, the other holds it responsible for keeping the measured inflation rate below target.

This makes it all the more essential to assess the appropriateness of the Bank’s policy with a strict focus on the target for inflation. To do this, the present paper analyses the effectiveness of monetary policy through its various transmission channels. It shows that the current environment of falling unemployment and solid growth yet low inflation is partly the result of the supply side effects of monetary policy. These effects loom large because, as a result of the banking and sovereign debt crisis, the influence of monetary policy through the demand-side channels is currently limited. For banks, for example, balance sheet adjustment today takes precedence over lending, while for companies it has priority over new investments. This means that cheap finance is keeping the cost pressure on companies with substantial debt low. However, growth in the Eurozone will accelerate the normalisation of these transmission channels, with the result that the inflation rate can also be expected pick up again. The obvious conclusion to be drawn is that the ECB should interpret its inflation target less strictly and not wait too long before reverting to its normal monetary policy.

Download PDF
Is the European Central Bank’s Monetary Policy Still Appropriate?
Markus Demary / Michael Hüther IW-Trends No. 1 3. April 2018

Is the European Central Bank’s Monetary Policy Still Appropriate?

Download PDF

Share this article:

or copy the following link:

The link was added to your clipboard!

More on the topic

Read the article
The Costs and Benefits of Continuing Further Training
Susanne Seyda / Beate Placke IW-Trends No. 4 4. December 2017

The 9th IW Survey of Further Training

In 2016 some 85 per cent of companies in Germany were active in continuing vocational training, using a broad mix of methods.

IW

Read the article
IW Research Group Macroeconomic Analysis and Forecast IW-Trends No. 4 27. November 2017

Has the German Economy Reached its Limit?: Skilled Labour Shortages as a Brake on Growth

The German economy is performing significantly better than was expected in the first few months of this year. During the course of 2017, certain early fears – especially of a weakening of the global economy due to increasing protectionism – have proved ...

IW

Content element with id 8880 Content element with id 9713