How Much of the Decline in Inflation Is Due to ECB Policy?

Euro Area inflation fell like a rock: from the peak of 10.6%, reached in October 2022, it dropped to levels below 3% a year later. We analyze how much of this decline can be attributed to policy tightening by the ECB. We find that the direct effect of ECB policy is likely small. ECB policy may have had important indirect effecta via anchoring inflation expectations, but quantifying this effect is difficult. The podcast makes reference Speech by ECB's Philip Lane, The ECB's hiking cycle: an interim assesssment, https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230216_1~f8cf2cd689.en.html Adam Shapiro, Decomposing Supply and Demand Driven Inflation, Federal Reserve Bank of San Fransciso, https://www.frbsf.org/research-and-insights/publications/working-papers/2022/10/decomposing-supply-and-demand-driven-inflation/