Does a less expansionary monetary policy, for example, an increase in interest rates, lead to lower inflation and dampened inflation expectations? Many empirical and theoretical studies suggest that it does. A new study, however, shows that, if inflation expectations diverge widely, a less expansionary monetary policy can lead to increased inflation and higher inflation expectations.

The productivity of many firms evolves over time. This impacts on the optimal inflation rate – the rate of price increase with the least distortionary effect on relative goods prices. Our estimates for the United States suggest that, due to firm-level productivity changes, the optimal inflation rate has dropped from somewhat over 2% in the mid-1980s to a current level of roughly 1%.

The Eurosystem’s monetary policy is geared towards macroeconomic developments over the entire euro area. Does it produce different effects in the individual member states? And, if yes, how big are the differences? Our empirical study on interest rate policy examines this question for Germany, France, Italy and Spain, the four largest economies in the euro area.

Households in Germany are expecting interest rates to stay low over the relatively long haul, with many intending to adjust their saving behaviour in response. These are two of the key findings from the 2016 Panel on Household Finances (PHF) summer survey.

The years following the 2007-08 financial crisis saw central banks in the United States and other industrialized countries adopt highly expansionary monetary policy measures in an effort to stimulate the economy. But how effective have those policies been? A new study explores how effective an expansionary monetary policy stance can be in such turbulent times.