3  See Banco de España (2019) for a detailed discussion. 4  Andreeva and García-Posada (2019) estimate the impact of TLTROs on banks’ lending policies in the euro area. 4  Even though there is a broad consensus that these non-standard instruments have been effective in easing financing conditions and in supporting euro area inflation, economic growth and employment, their expansionary effects did not prevent inflation from remaining persistently below the ECB’s target for much of the last decade. This led the ECB to review its monetary policy strategy in order to search for ways to better fulfil its price stability mandate. 2 Main elements of the ECB’s new monetary policy strategy  The unanimous adoption in July 2021 of a new monetary policy strategy was an important achievement for the Eurosystem. This new strategy has drawn on an immense collective effort by the staff at the ECB and the Eurosystem national central banks over 18 months. Among the many new developments that this review has brought with it, let me now focus very briefly on three key aspects. For those interested, I provide a more comprehensive description of the new strategy in my article “The European Central Bank’s new monetary policy strategy”, The Euro YearBook 2022. First, the ECB has adopted a new medium-term inflation target of 2%. This target is symmetric in the sense that positive and negative deviations of inflation from the target are considered equally undesirable.
As a result, the ECB has a clearer and more credible inflation target, since this 2% target eliminates the possible impression of asymmetry that could stem from the previous target (“below, but close, to 2%”) and seeks to provide a clear anchor for inflation expectations. As I will highlight later on in my talk, this definition also confirms the medium-term orientation of monetary policy that already existed under the previous strategy. This medium-term orientation provides room for inevitable short-term deviations of inflation from the target, as well as for lags and uncertainty in the transmission of monetary policy. Moreover, the flexibility embedded in this medium-term orientation also allows for an appropriate monetary 5  policy response to inflation deviations from the target that takes into account the origin, scale and persistence of the underlying shocks to inflation. Second, the ECB has taken into account the monetary policy implications of the lower bound on interest rates. In particular, the new strategy establishes a requirement for especially forceful or persistent monetary measures when the economy is close to the effective lower bound, in order to prevent negative deviations from the inflation target from becoming entrenched. This may also imply a transitory period of overshooting in which inflation is moderately above target. I will also refer to this key aspect of the new strategy in the third part of my talk today. And third, the ECB has made explicit that the set of policy rates remains its primary monetary policy instrument.