What About Policy Normalisation?

As the ECB follows the time-honoured inflation targeting strategy, it runs the risk of, once more, failing to normalise its policy in time for the next unexpected shock. With interest rates at their lower bounds and facing historic uncertainty that undermines its policy effectiveness, a strong case can be made for developing a Plan B. This paper was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 27 September 2021.