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Beware of Pitfalls in the European Central Bank’s Review of Monetary Policy Strategy

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  • Tamborini Roberto

    (Department of Economics and Management, University of Trento, Trento, Italy)

Abstract

The long-awaited Review of Monetary Policy Strategy of the European Central Bank has been released. According to the Governing Council, “price stability is best maintained by aiming for 2% inflation over the medium term”, with “symmetric commitment” to this target. “Symmetry means that the Governing Council considers negative and positive deviations from this target as equally undesirable”. This orientation seems contrarian to the view, expressed by some dissenting scholars, that 2% should be set as a ceiling, and that persistent inflation below 2% observed over the last decade was to be adopted as the “new normal”. The aim of this paper is not to examine and assess the new policy strategy of the ECB per se, but to warn about pitfalls in detecting undesirable (expectation-driven) deviations of inflation from target versus permanent changes in the ouput-inflation relationship.

Suggested Citation

  • Tamborini Roberto, 2022. "Beware of Pitfalls in the European Central Bank’s Review of Monetary Policy Strategy," The Economists' Voice, De Gruyter, vol. 19(1), pages 15-23, June.
    • Handle: RePEc:bpj:evoice:v:19:y:2022:i:1:p:15-23:n:6
    DOI: 10.1515/ev-2021-0024
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    References listed on IDEAS

    as
    1. Mariana García-Schmidt & Michael Woodford, 2019. "Are Low Interest Rates Deflationary? A Paradox of Perfect-Foresight Analysis," American Economic Review, American Economic Association, vol. 109(1), pages 86-120, January.
    2. George W. Evans & Bruce Mcgough, 2018. "Interest‐Rate Pegs in New Keynesian Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(5), pages 939-965, August.
    3. Peter Hooper & Frederic S. Mishkin & Amir Sufi, 2019. "Prospects for Inflation in a High Pressure Economy: Is the Phillips Curve Dead or is It Just Hibernating?," NBER Working Papers 25792, National Bureau of Economic Research, Inc.
    4. Dräger, Lena & Lamla, Michael J. & Pfajfar, Damjan, 2016. "Are survey expectations theory-consistent? The role of central bank communication and news," European Economic Review, Elsevier, vol. 85(C), pages 84-111.
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    6. Giuliana Passamani & Alessandro Sardone & Roberto Tamborini, 2022. "Inflation puzzles, the Phillips Curve and output expectations: new perspectives from the Euro Zone," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(1), pages 123-153, February.
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    Cited by:

    1. Herzog, Bodo, 2023. "How credible is average and symmetric inflation targeting in an episode of high inflation?," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1750-1761.

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    More about this item

    Keywords

    European Central Bank; monetary policy strategy review; Phillips Curve;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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