The ECB'S Inflation Objective

April 1, 2003

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Format: Chicago

Mads Kieler. The ECB'S Inflation Objective, (USA: International Monetary Fund, 2003) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The ECB's objective of medium-term inflation below 2 percent has been portrayed by critics as ambiguous, asymmetric, and excessively stringent. This paper attempts a comprehensive evaluation of the trade-offs for the euro area and finds that: (1) in terms of guiding inflation expectations and policymaking, the current definition has functioned much as would an inflation target centered on 1 1/2-1 3/4 percent; (2) the absence of a specific (point) target for medium-term inflation has encumbered the communication of monetary policy; and (3) a target toward the upper end of the ECB's price-stability range would seem, at least with the current membership of EMU, to strike a judicious balance between the benefits of price stability, on the one hand, and the need to assist relative price and wage adjustment across EMU and safeguard against deflation, on the other hand.

Subject: Deflation, Inflation, Inflation targeting, Monetary policy, Price stabilization, Prices, Sticky prices, Wage adjustments

Keywords: Base pay, Deflation, Eastern Europe, ECB official, ECB policy decision, ECB target, Economics profession, Europe, European Central Bank, European Monetary Union, GDP deflator, Global, Inflation, Inflation expectation, Inflation targeting, Monetary policy, Nominal wage, Phillips curve, Price stability, Price stabilization, Rate of inflation, Real interest rate, Sticky prices, Stochastic model, Utility function, WP

Publication Details

Pages:

50
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/091
Stock No:

WPIEA0912003
ISBN:

9781451851533
ISSN:

1018-5941

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