The 2021 review of the monetary policy strategy of the Eurosystem : an economy of forces

Abstract

This study delves into the rationale behind the 2021 review of the monetary policy strategy of the Eurosystem and elaborates on the main elements of the new strategy and its implications for monetary policy-making going forward. The profound changes in the economic landscape that have taken place since the last review in 2003 prompted the European Central Bank and the euro area national central banks to embark on a comprehensive review of the monetary policy strategy of the Eurosystem. The aim has been to ensure that the strategy reflects upon these unique challenges and remains well suited in pursuit of the primary objective of price stability. The key outcome of the strategy review, unveiled in July 2021, has been the reformulation of the price stability objective so as to adopt a symmetric commitment to the 2% inflation target over the medium term, as well as the confirmation of the flexible use of unconventional monetary policy tools when the economy operates close to the effective lower bound of interest rates. In addition, the new strategy has further incorporated financial stability and climate change considerations into the monetary policy framework. The present study outlines the enhancements embedded in the new strategy, as regards the fulfilment of the price stability mandate of the Eurosystem. It also discusses the ways in which the new strategy could have, to some extent, addressed the challenges faced by the euro area and its individual members, with a focus on Greece, over the past crisis years.