Three days at the ECB!First, the Macroprudential Conference and then the farewell homage to Benoît Coeuré who finishes his mandate. A great personality, an excellent colleague and a brilliant economist! He made a very insightful speech. Read it ecb.europa.eu/press/key/date… 1/7
One of several nuggets:“Consider first the ECB’s definition of price stability as inflation rates of “below, but close to, 2% “. A simple answer to the current challenges would be to lower the inflation aim….this strategy would be wrong on many levels.”
I agree 2/7
I agree 2/7
Solution :“The ECB should clarify that it aims to.. inflation of 2% over the medium term” Yes, excellent. I have been in favour of a precise number. But then, more doubtfuly: “And it could communicate the range of inflation.. that can be considered acceptable in normal times.”3/7
“Such a tolerance band, which can be more or less precise, is not an invitation for inaction or complacency.” But a”tolerance band” is something that is tolerated. How can it then promote no complacency or inaction?Important distinction, however :”can be more or less precise” 4/7
In my view, a precise quantitative “tolerance band” would lead to acceptance in practice of a lower level and would undermine the main 2% target that, as Benoit says, “.. needs to remain the clear nominal anchor for coordinating both expectations and actions.” 5/7
The arguments used to defend that a quantitative “tolerance band” would not lead to inaction when inflation would be in the lower part of the range, don’t seem convincing to me, in view of my experience and knowledge about central banking and central bankers. 6/7
So, my preference goes for a single numerical target of 2% (not credible to go for higher).Then a qualitative obvious thing could be added:Small deviations from the target in either direction may naturally occur,without inducing complacency in policy efforts to comply with it.7/7
