• The 2021 European Central Bank's (ECB) monetary policy strategy review resulted in useful changes to the monetary policy framework, informed by numerous thorough analyses done by ECB staff.

• The ECB's justification for the monetary policy review was significant structural changes in the economy since the previous review of 2003. These changes include a declining equilibrium rate of growth and lower equilibrium interest rates, which reduce the scope for interest cuts in a cyclical downturn. In our view, the ECB's systematic forecasting failure was an even more important justification for a review and revision of models.

• The most important change arising from the review has been the replacement of the earlier ambiguous inflation objective by a clear 2 % symmetric inflation target. The previous objective might have been perceived as asymmetric, resulting in more forceful monetary actions in case inflation overshot 2 % than when inflation fell short of 2 %. In fact, both actual inflation and expected long-term inflation were close to 2 % for about a decade after the previous review in 2003, suggesting that the 2014-2019 inferior inflation outcome cannot be attributed to perceived asymmetry alone.

• While the US Federal Reserve (Fed) decided for average inflation targeting in its 2020 monetary policy review, the ECB has not. The ECB's new target resembles the Fed's previous target. The Fed's main justification for an average inflation target is the anchoring of long-term expectations. ECB staff research presented an analysis of average inflation targeting, yet it is unclear why the ECB Governing Council did not opt for average inflation targeting.

• The strategy review maintained the medium-term horizon for maintaining price stability, but did not define what "medium term" means, and added an extra layer to the reasoning. Financial stability concerns could be a factor influencing the actual time horizon of the medium term. While there are synergies between monetary and financial stability policies, the two policy areas need different tools. More clarity is needed on the influence of financial stability concerns on monetary policy and its time horizon, also to ensure ECB accountability.

• The ECB plans to include costs related to owner-occupied housing (OOH) in the inflation indicator. In the US, the "rental equivalence" method is used to include OOH costs, while Eurostat and ECB seem to favour the "net acquisition" approach. The latter might involve an asset price component in the inflation indicator. We calculate that adding an OOH price index which is based on the net acquisition approach to the HICP would have increased annual inflation by 0.23 % points on average from 2016 to 2020, but adding an OOH price index which is based on the rental equivalence method would have left HICP practically unchanged.