Wednesday, January 22, 2014

Rational behavior at the ECB?

I forgot to make a point on my post on counterfactuals in the US and EU that is important enough to be promoted from a comment on the post to a post in its own right. The monetary policy coming from the ECB could be seen as a rational response to empirical data:

In response to the financial crisis, the ECB appears to have expanded the base a small amount (EU institutions have better safety nets than in the US, so less monetary stimulus might have been called for in order to offset inflation delflation). However, the lack of a strong response in NGDP in either direction gave them an indication that monetary expansion was ineffective. As new NGDP (an unemployment) numbers came out, adjustments were made, but there was still no empirical response to monetary stimulus. It's not until 2012 when a double dip recession seemed imminent that a larger expansion was undertaken. There was still no response in NGDP, therefore it was retracted ... which, even if inflation is still below target, still hasn't led to downright deflation.

UPDATE: Correction above.

No comments:

Post a Comment

Comments are welcome. Please see the Moderation and comment policy.

Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.

Note: Only a member of this blog may post a comment.