Central bank research hub - Papers by Pirkka Jalasjoki
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Research hub papers by author Pirkka JalasjokienWhat does "below, but close to, two percent" mean? Assessing the ECB's reaction function with real time data
https://helda.helsinki.fi/bof/bitstream/123456789/14932/1/BoF_DP_1729.pdf
Bank of Finland Discussion Papers by Maritta Paloviita, Markus Haavio, Pirkka Jalasjoki and Juha KilponenWhat does "below, but close to, two percent" mean? Assessing the ECB's reaction function with real time data2017-10-05T00:00:00ZWe 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.What does "below, but close to, two percent" mean? Assessing the ECB's reaction function with real time dataFull texthttps://helda.helsinki.fi/bof/bitstream/123456789/14932/1/BoF_DP_1729.pdfMarkus HaavioJuha KilponenMaritta PaloviitaPirkka JalasjokiMaritta Paloviita, Markus Haavio, Pirkka Jalasjoki and Juha Kilponen2017-10-05Bank of Finland Research Discussion PapersE52E58