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

Joreg Bibow
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Joreg Bibow: The Levy Economics Institute

Macroeconomics from EconWPA

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.

Keywords: Monetary policy; European Central Bank; inflation targeting; inflation persistence; tax-push inflation; antigrowth bias. (search for similar items in EconPapers)
JEL-codes: E31 E42 E58 E61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fmk, nep-mac and nep-mon
Date: Written 2005-07-15
Note: Type of Document - pdf; pages: 23
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