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The Eurozone as an Inflation Target Zone

Author

Listed:
  • Pompeo Della Posta
  • Roberto Tamborini

Abstract

In the revised monetary policy strategy of the European Central Bank (ECB), “price stability is best maintained by aiming for two per cent 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”. In this article, we therefore analyse this policy strategy through a model of inflation target zone, with a central value and symmetric upper and lower bounds on inflation, within which the central bank may decide not to intervene, provided inflation is expected to fluctuate around the central value. We show that the policy benefits guaranteed by a target zone can be dissipated if market agents are uncertain about its width.

Suggested Citation

  • Pompeo Della Posta & Roberto Tamborini, 2022. "The Eurozone as an Inflation Target Zone," CESifo Working Paper Series 10014, CESifo.
    • Handle: RePEc:ces:ceswps:_10014
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    References listed on IDEAS

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    More about this item

    Keywords

    European Central Bank; monetary policy strategy; inflation target zones;
    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

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