The role of macroeconomic projections within the monetary policy strategy of the ECB

Abstract

Macroeconometric models can be used, for instance, to assess how the euro area responds to shocks or to make forecasts and projections for the euro area. At the same time, for policy purposes, such tools need to be associated with alternative—possibly judgmental—approaches, to the extent that a policy analysis has to be based on a full-information set. This paper addresses the particular issue of the ECB projection exercise, first in terms of its relation to monetary policy and the corresponding strategy, and second, with respect to the specific role on models in producing the projections, with a particular focus on which type of models are used and on the particular procedure followed to duly incorporate judgmental elements.