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

Listed author(s):
  • 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)

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.

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File URL: http://spire.sciencespo.fr/hdl:/2441/3vuuavnjhi9ghbgj75gq519ge1/resources/november-2015.pdf
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Paper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/3vuuavnjhi9ghbgj75gq519ge1.

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Date of creation: Nov 2015
Handle: RePEc:spo:wpmain:info:hdl:2441/3vuuavnjhi9ghbgj75gq519ge1
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  1. Matteo Ciccarelli & Benoît Mojon, 2010. "Global Inflation," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 524-535, August.
  2. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
  3. 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, Winter.
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