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The ECB'S Inflation Objective

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  • Mads Kieler

Abstract

The ECB's objective of medium-term inflation below 2 percent has been portrayed by critics as ambiguous, asymmetric, and excessively stringent. This paper attempts a comprehensive evaluation of the trade-offs for the euro area and finds that: (1) in terms of guiding inflation expectations and policymaking, the current definition has functioned much as would an inflation target centered on 1 1/2-1 3/4 percent; (2) the absence of a specific (point) target for medium-term inflation has encumbered the communication of monetary policy; and (3) a target toward the upper end of the ECB's price-stability range would seem, at least with the current membership of EMU, to strike a judicious balance between the benefits of price stability, on the one hand, and the need to assist relative price and wage adjustment across EMU and safeguard against deflation, on the other hand.

Suggested Citation

  • Mads Kieler, 2003. "The ECB'S Inflation Objective," IMF Working Papers 03/91, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:03/91
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    Cited by:

    1. Virginie Traclet, 2004. "Monetary and Fiscal Policies in Canada: Some Interesting Principles for EMU?," Staff Working Papers 04-28, Bank of Canada.
    2. Christian Bordes & Laurent Clerc, 2007. "Price Stability And The Ecb'S Monetary Policy Strategy," Journal of Economic Surveys, Wiley Blackwell, vol. 21(2), pages 268-326, April.
    3. Matteo Luciani, 2004. "A VAR Model for the Analysis of the Effects of Monetary Policy in the Euro Area," Rivista di Politica Economica, SIPI Spa, vol. 94(6), pages 175-214, November-.
    4. Mark R. Stone, 2003. "Greater Monetary Policy Transparency for the G3; Lessons From Full-Fledged Inflation Targeters," IMF Working Papers 03/218, International Monetary Fund.

    More about this item

    Keywords

    European Economic and Monetary Union; European Monetary Union; Central banks and their policies; Monetary policy; Price stability; Inflation; European Central Bank; inflation rates; inflation target; ECB;

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