Speech by Philip R. Lane, Member of the Executive Board of the ECB, at the SUERF Marjolin Lecture hosted by the Banca d’Italia

Rome, 18 November 2024

Introduction

My aim today is to explain how macroeconomic models can help in understanding the extraordinary 2021-2022 inflation surges and the monetary policy response, in the context of the euro area.^[1] By and large, the scale and persistence of the inflation surge surprised the central banking community, external experts and market participants. The unexpected nature of the inflation surge triggered many questions about the performance of macroeconomic forecasters.

At the same time, macroeconomic models can help us understand why the baseline projections did not foresee the inflation surge in its full scale and speed, while shedding light on the possible mechanisms and channels that may have been missed or under-stated. Scenario analysis has been enhanced and new models have been developed to enrich our understanding of the shocks…