Re-examining How the ECB Responds
Re-examining the ECB’s Reaction Function
At the beginning of this year, I chose to revisit my previous analysis on how the European Central Bank (ECB) determines its policy responses—a topic I explored in the appendix of both "ECB Set to Cut Rates Amid Trade Turmoil" and "Will the ECB cut interest rates on October 17?". While this area may appear highly specialized to some, I was motivated to update my model after receiving thoughtful feedback from economists working within the Eurosystem who had thoroughly reviewed my work. It’s worth noting that external observers often overlook the rigorous and structured nature of policy evaluation within central banks. Although reaction functions are not a replacement for in-depth assessments of economic trends, they remain a valuable analytical tool.
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