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Is the European Central Bank Failing Its Price Stability Mandate?

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  • Angel Ubide

    () (Peterson Institute for International Economics)

Abstract

Inflation in the euro area is too low, and the European Central Bank (ECB) is at risk of missing its price stability mandate. With the market forecasting average inflation in the euro area over the next five years in the 1.25 to 1.5 percent range, the ECB must prepare to act forcefully to push inflation higher. The ECB should (1) update the definition of price stability as inflation at 2 percent over 2 to 3 years to eliminate the ambiguity over the inflation objective; (2) reduce risk premia in the yield curve via a program of quantitative easing, making clear that this is a monetary policy operation—and thus legal under the Maastricht Treaty; and (3) ease the quantitative credit shortages to small and medium enterprises (SMEs) via a well-designed lending program, offering long-term funds at the policy rate to banks who lend to SMEs. These actions would restore price stability and encourage sustainable growth.

Suggested Citation

  • Angel Ubide, 2014. "Is the European Central Bank Failing Its Price Stability Mandate?," Policy Briefs PB14-5, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb14-5
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    1. Angel Ubide, 2013. "Reengineering EMU for an Uncertain World," Policy Briefs PB13-4, Peterson Institute for International Economics.
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    Cited by:

    1. Orphanides, Athanasios, 2017. "The Fiscal-Monetary Policy Mix in the Euro Area: Challenges at the Zero Lower Bound," CEPR Discussion Papers 12039, C.E.P.R. Discussion Papers.
    2. Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance, 2015. "The QE experience : Worth a try ?," Sciences Po publications info:hdl:2441/166ip2fse39, Sciences Po.
    3. Stefano Neri & Giuseppe Ferrero, 2017. "Monetary policy in a low interest rate environment," Questioni di Economia e Finanza (Occasional Papers) 392, Bank of Italy, Economic Research and International Relations Area.
    4. Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance, 2015. "Que peut-on attendre de l’assouplissement quantitatif de la BCE ?," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(2), pages 265-290.
    5. Federico Steinberg & Mattias Vermeiren, 2016. "Germany's Institutional Power and the EMU Regime after the Crisis: Towards a Germanized Euro Area?," Journal of Common Market Studies, Wiley Blackwell, vol. 54(2), pages 388-407, March.

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