Between 2022 and 2023, with inflation still high, the ECB introduced three criteria - inflation outlook, underlying inflation dynamics, and monetary policy transmission - to guide its data-dependent approach to policy rates. This study examines the impact of these criteria on inflation forecasts and their implications for monetary policy calibration.
During the 2021-22 inflation surge, forecasts incorporating underlying inflation and monetary policy transmission outperformed staff projections over a one-year horizon. However, in the subsequent disinflation phase, these forecasts overestimated inflation and underperformed relative to staff projections, raising concerns about an overly restrictive monetary policy stance.
