The ECB's new inflation target from a short- and long-term perspective

Pierpaolo Benigno, Paolo Canofari, Giovanni Di Bartolomeo () and Marcello Messori

No 163, CIMEO Working Paper Series from Centre for Investigation and Modelling of Experimental Observations (CIMEO)

Abstract: This study examines the European Central Bank's revised inflation target, which specifies that the 2% inflation-rate threshold should be applied symmetrically and with a medium-term orientation. The paper discusses the strengths and weaknesses of the new strategy in both short- and long-term perspectives, with particular attention to the euro area's current phase of high inflation and increasing stagnation risk. It compares the ECB's strategy with that of the Federal Reserve, analyzes the rationale for an inflation buffer in a context of declining natural interest rates and zero-lower-bound constraints, and evaluates the implications for monetary policy. The study argues that monetary policy alone cannot address supply-driven inflation and that an effective policy mix, including a centralized fiscal capacity and the provision of appropriate European public goods, is needed to control excessive inflation while supporting sustainable medium-term growth.

Keywords: European Central Bank; inflation target; inflation expectations; stagflation; monetary policy; policy mix; euro area (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 E61 (search for similar items in EconPapers)
Date: 2023
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Related works:
Journal Article: The ECB’s new inflation target from a short- and long-term perspective (2023)
Working Paper: The ECB’s new inflation target from a short- and long-term perspective (2023)
Working Paper: The ECB's new inflation target from a short- and long-term perspective (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ter:wpaper:00163

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