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Challenges for the ECB in Times of Deflation

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  • Francesco Saraceno

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

This paper assesses the performance of the European Central Bank (ECB) during the crisis that started in 2008. The ECB statute is consistent with a view of the economy that was predominant in the 1990s, a view that postulates a very limited role for discretional policies in managing the business cycle. The ECB had therefore to stretch its mandate on several occasions during the crisis to avoid severe outcomes. It was unable to avoid a slow but inexorable slide of the Eurozone towards deflation and a liquidity trap. To restore robust growth, fiscal policy should be used, and institutions should be redesigned away from the Washington Consensus framework that shaped the Maastricht Treaty. Better rules for fiscal governance and a widening of the ECB mandate are proposed.

Suggested Citation

  • Francesco Saraceno, 2015. "Challenges for the ECB in Times of Deflation," Working Papers hal-03470271, HAL.
    • Handle: RePEc:hal:wpaper:hal-03470271
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03470271
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    File URL: https://sciencespo.hal.science/hal-03470271/document
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    References listed on IDEAS

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    Cited by:

    1. Francesco Saraceno, 2016. "The ECB: a reluctant leading character of the EMU play," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 33(2), pages 129-151, August.

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