Does monetary policy have an effect?
The article examines the effects of monetary policy on inflation and economic growth from a theoretical and empirical perspective.
The ECB ended the era of zero interest rates in 2022 in response to historically high inflation. Inflation driven by supply-side disruptions is, however, more difficult to curb through monetary policy than demand-driven inflation. New Keynesian models are used as the theoretical framework, in which monetary policy can influence the real economy in the short term due to the slow adjustment of prices.
The empirical evidence is partly contradictory, but the most recent studies support the traditional view: a rise in the policy rate slows economic growth fairly strongly and dampens inflation somewhat more mildly. The ECB’s challenge is to balance curbing inflation against dampening economic growth. (AI translation)
