Do you think the so called "data-driven appproach" of the ECB is something that have intensified in the post-covid era or is it something that was present before? From your writings I get the sense that the ECB decision making has always being super data driven an avoided forecast and the fact it has so many participants and so little time to make the rates decision intensifies it. On the other hand, I feel that the data-driven approach is a post-covid phenomenon and it is not related to the size of the ECB board, since the FED, BoE etc are all following this approach.
Thank you for your question. As I see it, the ECB and other central banks have historically been data dependent. But when the policy rate hit the effective lower bound after the global financial crisis, some central banks used forward guidance to put additional downward pressure on long yields. Once they started to raise interest rates off the floor after covid, the importance of forward guidance was reduced and it has now disappeared as central banks have become data-dependent again. The ECB was slow to do so, arguably because President Lagarde didn't know the relevant history. So it is indeed not related to the cumbersome size of the ECB.
Do you think the so called "data-driven appproach" of the ECB is something that have intensified in the post-covid era or is it something that was present before? From your writings I get the sense that the ECB decision making has always being super data driven an avoided forecast and the fact it has so many participants and so little time to make the rates decision intensifies it. On the other hand, I feel that the data-driven approach is a post-covid phenomenon and it is not related to the size of the ECB board, since the FED, BoE etc are all following this approach.
Thank you for your question. As I see it, the ECB and other central banks have historically been data dependent. But when the policy rate hit the effective lower bound after the global financial crisis, some central banks used forward guidance to put additional downward pressure on long yields. Once they started to raise interest rates off the floor after covid, the importance of forward guidance was reduced and it has now disappeared as central banks have become data-dependent again. The ECB was slow to do so, arguably because President Lagarde didn't know the relevant history. So it is indeed not related to the cumbersome size of the ECB.