European Central Bank

The European Central Bank is committed to price stability. Its medium-term goal is to keep the inflation rate at just under two percent. The ECB controls the interest rate on the interbank market, i.e. the market on which banks trade with each other and with the ECB, primarily by setting the prime rate.

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Markus Demary / Michael Hüther ·
IW-Trends Nr. 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.

Markus Demary ·
IW News ·
15 August 2017

ECB: Monetary policy needs limits

The German Constitutional Court has rightly expressed doubts about the monetary policy of the European Central Bank (ECB) and has asked the European Court of Justice for a legal review of it. This time, the case is about the Public Sector Purchase Program (PSPP), within which the ECB has already purchased bonds worth 1.6 trillion euros. The limits on the asset purchases have to be clarified.

Markus Demary ·
IW-Kurzbericht Nr. 17 ·
16 February 2017

The End of Low Interest Rates?

After the economic recovery has strengthened and inflation rates have increased, hopes for higher interest rates emerged among savers, while debtors began to fear higher financing costs. This article argues, that there is room for higher interest rates, but this room is small compared to historical interest rate levels.

Fed’s interest rate decision ·
IW News ·
2 February 2017

Conflict postponed

The US Federal Reserve has not raised its key interest rates despite good economic data. The new US government is likely to be satisfied with this decision, because low interest rates help to fund its planned infrastructure projects. The political pressure on the Fed is therefore likely to increase.

Markus Demary / Michael Hüther ·
IW-Kurzbericht Nr. 12 ·
1 February 2017

ECB Might Overshoot the Inflation Target

The European Central Bank (ECB) has prolonged its large-scale asset purchase programs for public and private bonds in December 2016 until the end of 2017. Otherwise the programs would have expired in March 2017. Due to its strong focus on the inflation target of below, but close to 2 percent, the extension of the asset purchasing programs was expected in case of weak inflation dynamics. Inflation, however, recovered at the end of last year due to normalizing oil prices.

Michael Hüther in The International Economy ·
Contribution ·
3 January 2017

The U.S. experience should lead the way

Despite of the European Central Bank’s (ECB) accommodative monetary policy stance, Euro Area inflation expectations remain persistently depressed. Financial intermediaries’ interest rate margins have been squeezed and the secondary market for sovereign debt is running out of bonds. As a consequence more and more European economists call for a tool of last resort – helicopter money. A contribution by Michael Hüther for The International Economy, a specialized quarterly magazine.

Matthias Diermeier / Henry Goecke ·
IW-Policy Paper Nr. 17 ·
21 December 2016

Money supply and inflation in Europe: Is there still a connection?

Since the outbreak of the European financial and economic crisis in 2008, the monetary policy of the European Central Bank (ECB) has been in crisis mode. Ensuring that the growth in the money supply transmutes into higher inflation or inflation expectations has been difficult.

Interest rate decision of the Federal Reserve ·
IW News ·
19 December 2016

The Eurozone will benefit

The US Federal Reserve Bank (Fed) raised its policy interest rates again after a prolonged wait-and-see period. Although the rise is only moderate, the higher US interest rates could benefit the Eurozone.

Interest rate decision by the Federal Reserve ·
IW News ·
22 September 2016

Normalization of monetary policy increasingly unlikely

The US Federal Reserve Bank (Fed), postponed an increase in its key policy rate again. Last year, the Fed had officially ended its low interest rate policy. But despite improved labor market data it has delayed further rate hikes. The central bank is far away from a "normal" policy rate, which would be 4 percent in the United States, - therefore the Fed might have to rely on negative policy rates like in Europe in the forthcoming economic downturn.

Michael Hüther / Markus Demary ·
IW-Kurzbericht Nr. 62 ·
20 September 2016

IW Monetary Outlook: The Contribution of Supply and Demand Factors to Low Inflation

Eurozone inflation underperforms since the beginning of 2013 and monetary policy struggles to stabilize it since then. The items of the aggregate inflation rate indicate that low inflation is due to both supply and demand factors and weak demand is caused by indebtness and unemployment. Additional monetary policy measures are not required in the current situation because monetary policy has long lags when economies are indebted and it already helped to reduce cyclical unemployment.