Price Stability and the Ecb's Monetary Policy Strategy

54 Pages Posted: 19 Dec 2010

See all articles by Christian Bordes

Christian Bordes

affiliation not provided to SSRN

Laurent Clerc

Banque de France

Date Written: March 1, 2004

Abstract

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. Secondly, this paper will focus exclusively on the anchoring of short- to medium-term inflation expectations (Part 2). Several measures show that this anchoring is effective. Modern New Keynesian theory is an appropriate framework for analysing 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. Thirdly, we will 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 five years, various indicators from the theoretical analysis paint a fairly reassuring picture of the effectiveness of the device used by the ECB.

Keywords: Monetary policy, European Central Bank, Inflation

JEL Classification: E52, E58, E31

Suggested Citation

Bordes, Christian and Clerc, Laurent, Price Stability and the Ecb's Monetary Policy Strategy (March 1, 2004). Banque de France Working Paper No. 109, Available at SSRN: https://ssrn.com/abstract=1727385 or http://dx.doi.org/10.2139/ssrn.1727385

Christian Bordes (Contact Author)

affiliation not provided to SSRN ( email )

No Address Available

Laurent Clerc

Banque de France ( email )

Paris
France

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