We estimate the ECB's monetary policy reaction function by using real time Eurosystem/ECB staff macroeconomic projection data, which are presented to the ECB's Governing Council when it assesses the monetary policy stance in the euro area. Alternative specifications of the reaction function...

Both the optimal inflation target and the optimal degree of output stabilization are found to be conditional on the prevailing wage bargaining structure. If monopolistic wage setters act as strategic leaders of the monetary policy game, an explicit inflation targeting regime removes inflation...

Monetary policy transmission lags create credibility problems for the inflation-targeting policy maker who acts under discretion. We show that if prices react to monetary policy with a longer lag than output, the welfare maximizing inflation-targeting policy implies no policy stabilization of...