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Refocusing the ECB on Output Stabilization and Growth through Inflation Targeting?

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  • Joreg Bibow

    (The Levy Economics Institute)

Abstract

Challenging the conventional wisdom that structural problems are to blame for the euro area’s protracted domestic demand stagnation, this paper sets out to shed some fresh light on the role of the ECB in the ongoing EMU crisis. Contrary to the widely held interpretation of the ECB as an inflation targeter—and a rather soft one, too—it is argued that the key characteristic of the ECB is the pronounced asymmetry in its policy approach and mindset. Curiously, this asymmetry has not only given rise to an antigrowth bias, but to upward price pressures and distortions as well. There is a link between stagnation and inflation persistence that owes to the ECB’s failure to internalize the euro area’s fiscal regime. This raises the question as to whether inflation targeting would have led to better results, or could do so in future.

Suggested Citation

  • Joreg Bibow, 2005. "Refocusing the ECB on Output Stabilization and Growth through Inflation Targeting?," Macroeconomics 0507017, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0507017
    Note: Type of Document - pdf; pages: 23
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    References listed on IDEAS

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    7. Jorg Bibow, 2004. "Assessing the ECB's Performance since the Global Slowdown: A Structural Policy Bias Coming Home to Roost?," Economics Working Paper Archive wp_409, Levy Economics Institute.
    8. Jörg Bibow, 2004. "Reflections on the current fashion for central bank independence," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 28(4), pages 549-576, July.
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    10. Jeffrey C. Fuhrer, 1994. "Goals, guidelines, and constraints facing monetary policymakers: an overview," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 3-15.
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    12. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
    13. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
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    Cited by:

    1. Pusch, Toralf & Heise, Arne, 2008. "Central Banks, Trade Unions and Reputation – Is there Room for an Expansionist Manoeuvre in the European Union?," MPRA Paper 19719, University Library of Munich, Germany.
    2. L. Randall Wray, 2005. "Monetary Policy Strategies of the European Central Bank and the Federal Reserve Bank of the U.S," Economics Working Paper Archive wp_431, Levy Economics Institute.
    3. Joerg Bibow, 2006. "Inflation Persistence and Tax-Push Inflation in Germany and in the Euro Area: A Symptom of Macroeconomic Mismanagement?," IMK Studies 01-2006, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. Jörg Bibow, 2006. "Europe's Quest for Monetary Stability. Central Banking Gone Astray," International Journal of Political Economy, Taylor & Francis Journals, vol. 35(1), pages 24-43.
    5. Michal Jurek & Pawel Marszalek, 2015. "Policy alternatives for the relationship between ECB monetary and financial policies and new member states," Working papers wpaper112, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    6. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093, January.
    7. Giuseppe Fontana & Alfonso Palacio‐Vera, 2007. "Are Long‐Run Price Stability And Short‐Run Output Stabilization All That Monetary Policy Can Aim For?," Metroeconomica, Wiley Blackwell, vol. 58(2), pages 269-298, May.
    8. Strachman, Eduardo, 2009. "Implementing inflation targeting in Brazil: an institutional analysis," MPRA Paper 15131, University Library of Munich, Germany, revised May 2009.

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    More about this item

    Keywords

    Monetary policy; European Central Bank; inflation targeting; inflation persistence; tax-push inflation; antigrowth bias.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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