Both the action and the communication strategy of the ECB rely on the assumption, explicitly stated, that inflation is always a monetary phenomenon, and that the interest rate instrument should be devoted exclusively to dealing with inflation pressures. According to this prior, the ECB structured its intervention in the interbank market around short term liquidity injections, leaving the interest rates unchanged. This strategy is different from the one pursued by the Fed, that instead used (especially in a first phase) interest rate cuts to reduce the interbank rates. Both strategies were efficient in reducing short term interest rates to their ‘normal’ level. But they proved different in what concerns their effect on longer term rates. The rate reduction of the Fed also had effects on long run rates, while the spread in the euro zone remained quite high. Thus, from a macroeconomic perspective the two strategies are different, the one followed by the ECB being more restrictive. We may think that this was not an unintended consequence, as the ECB had explicitly asserted its will to tighten its monetary stance. The Briefing paper concludes highlighting the risk, for the ECB credibility, of such an indirect strategy.
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