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Weak Inflation and Threat of Deflation in the Euro Area: Limits of Conventional Monetary Policy

Author

Listed:
  • Kerstin Bernoth
  • Marcel Fratzscher
  • Philipp König

Abstract

Inflation in the euro area has been below the European Central Bank's target for almost a year now and it is also expected to remain at a very low level in the near future. On the one hand, such a low level of inflation is not in line with the ECB's objective. On the other hand, there is the risk that this situation will lead to a slide into deflation. In view of the ECB's historically low policy rates, the question arises as to which monetary policy options are available. In order to counteract possible deflation, primarily unconventional measures remain open to the ECB, such as outright purchases of securities. But the onus is also on fiscal and economic policy to actively address low inflation and the risks of deflation.

Suggested Citation

  • Kerstin Bernoth & Marcel Fratzscher & Philipp König, 2014. "Weak Inflation and Threat of Deflation in the Euro Area: Limits of Conventional Monetary Policy," DIW Economic Bulletin, DIW Berlin, German Institute for Economic Research, vol. 4(5), pages 15-28.
    • Handle: RePEc:diw:diwdeb:2014-5-3
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.466772.de/diw_econ_bull_2014-05-3.pdf
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    Citations

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    Cited by:

    1. Mazumder, Sandeep, 2018. "Inflation in Europe after the Great Recession," Economic Modelling, Elsevier, vol. 71(C), pages 202-213.
    2. Michal Jurek & Pawel Marszalek, 2015. "Policy alternatives for the relationship between ECB monetary and financial policies and new member states," Working papers wpaper112, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.

    More about this item

    Keywords

    Monetary policy; deflation; ECB; Euro Area;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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