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The ability of the ECB to control inflation in a global environment

Author

Listed:
  • Christophe Blot

    (Observatoire français des conjonctures économiques)

  • Jérôme Creel

    (Observatoire français des conjonctures économiques)

  • Paul Hubert

    (Observatoire français des conjonctures économiques)

  • Fabien Labondance

    (Observatoire français des conjonctures économiques)

  • Xavier Ragot

    (Observatoire français des conjonctures économiques)

Abstract

In this paper, we study the global determinants of euro area inflation and show that they are large - they explain around 50% of inflation dynamics – and make it impossible for the ECB to fully control headline inflation. Nevertheless, we show that the ECB retains some control on the domestic part of euro area inflation. We therefore argue in favour of a change in the inflation target pursued by the ECB. Unless a change occurs, the ECB should promote cooperation with other central banks in order to match its CPI inflation target at 2% as 40 to 50% of CPI determinants is related to foreign yields and foreign output growths.

Suggested Citation

  • Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance & Xavier Ragot, 2015. "The ability of the ECB to control inflation in a global environment," Sciences Po publications info:hdl:2441/3vuuavnjhi9, Sciences Po.
    • Handle: RePEc:spo:wpmain:info:hdl:2441/3vuuavnjhi9ghbgj75gq519ge1
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    References listed on IDEAS

    as
    1. Calza, Alessandro, 2008. "Globalisation, domestic inflation and global output gaps: Evidence from the euro area," Working Paper Series 890, European Central Bank.
    2. Matteo Ciccarelli & Benoît Mojon, 2010. "Global Inflation," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 524-535, August.
    3. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
    4. Jane Ihrig & Steven B. Kamin & Deborah Lindner & Jaime Marquez, 2010. "Some Simple Tests of the Globalization and Inflation Hypothesis," International Finance, Wiley Blackwell, vol. 13(3), pages 343-375, December.
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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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