Time for the ECB to normalise its monetary policy? Insights from the Taylor rule. CEPS Commentary, 8 June 2017

Alcidi, Cinzia. and Busse, Mathias and Gros, Daniel. (2017) Time for the ECB to normalise its monetary policy? Insights from the Taylor rule. CEPS Commentary, 8 June 2017. [Policy Paper]

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Abstract

Eight years have now passed since the start of the financial crisis. The subsequent Great Recession moved Central Banks to slash interest rates and employ unconventional monetary policy tools to ward off deflationary pressures. The ECB has maintained its main policy rate below 1% since July 2012, and since March 2014 it went below the zero for the rate on the deposit facility. In March 2015, the ECB started a large asset purchase programme (APP) as it felt that it could no longer lower rates. Are the APP and the extraordinarily low interest rate still appropriate, given the current average macro-economic environment in the euro area?

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