Comprehensive ECB Governing Council rate probability analysis and eurozone insights
The European Central Bank's Governing Council meets every six weeks to assess monetary policy stance and economic conditions. Rate change probabilities are calculated based on EUR short term interest rate curve, as far as available. Missing data points are estimated using the Nelson-Siegel-Svensson yield curve model.
| Meeting Date | Cut | No Change | Hike |
|---|---|---|---|
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While the empirical probabilities above show what financial markets expect (based on yield curve pricing), the theoretical rate below shows what economic models suggest the ECB should do based on current economic conditions like inflation and growth.
Comparing these helps us understand whether the market expects the ECB to follow economic theory, or if they expect the ECB to take a different path for practical reasons.
The following analysis compares market-implied rate expectations (empirical probabilities derived from EUR short term interest rates) with model-based theoretical rates calculated using the ECB's structural framework. This comparison provides insight into the market's assessment of the ECB's reaction function relative to its historical policy rule.
| Indicator | Current | Target/Neutral | Gap |
|---|---|---|---|
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The theoretical rate is calculated using a Taylor Rule adapted for the eurozone. It considers:
When actual rates are below the theoretical rate, policy is considered "dovish" (supporting growth). When above, it's "hawkish" (fighting inflation).
Model: NAWM-Based Taylor Rule
Specification:
Where: $i_t^*$ = theoretical policy rate, $r^*$ = neutral real rate (~1.0% for eurozone), $\pi_t$ = current HICP inflation, $\pi^*$ = inflation target (2.0%), $\text{Gap}_t$ = output gap estimate, $\alpha$ = 0.5 (inflation response), $\beta$ = 0.5 (output response)
Note: The ECB's actual NAWM and ECB-BASE models are more sophisticated DSGE frameworks. This simplified Taylor Rule provides a comparable benchmark consistent with the ECB's reaction function literature. For full model specifications, see the European Central Bank Economic Models page.
Empirical Probabilities:
Economic Indicators:
Explore detailed specifications of NAWM, ECB-BASE, and other frameworks
View European Central Bank Economic ModelsValidation: Model outputs are continuously compared against ECB staff projections and consensus forecasts from major institutions (Bloomberg, Reuters surveys).