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Price Stability and the ECB'S monetary policy strategy

  • Christian Bordes

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Laurent Clerc

    (Direction de la Recherche - Banque De France - Banque de France)

This paper focuses on the price stability objective within the framework of the single monetary policy strategy. It starts by reviewing what this objective, which is common to all central banks, means. Second, this paper focuses exclusively on the anchoring of short- to medium-term inflation expectations (Part 2). Several measures show that this anchoring is effective. A 'two-pillar' small structural macro-economic model framework is used to analyze the impact that this anchoring of expectations has on the determination of the short- to medium-term inflation rate. From this point of view, observed inflation in the euro area seems to be in line with the theory and the ECB's action seems to be very effective. Third, we focus on the other aspect of monetary stability: the degree of price-level uncertainty and the anchoring of inflation expectations in the medium to long term. Even though this assessment is more difficult than it is in the short to medium term, since we only have a track record covering 6 years, various indicators from the theoretical analysis paint a fairly reassuring picture of the effectiveness of the device used by the ECB.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00308557.

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Date of creation: 20 Mar 2007
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Publication status: Published in Journal of Economic Surveys, Wiley, 2007, 21 (2), pp.268 - 326. <10.1111/j.1467-6419.2006.00504.x>
Handle: RePEc:hal:cesptp:hal-00308557
DOI: 10.1111/j.1467-6419.2006.00504.x
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00308557
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