The Ecb's Price Stability Framework: Past Experience, and Current and Future Challenges

128 Pages Posted: 23 Sep 2021 Last revised: 18 Nov 2021

See all articles by Martina Cecioni

Martina Cecioni

Bank of Italy

Günter Coenen

European Central Bank (ECB)

Roberto Motto

European Central Bank (ECB)

Hervé le Bihan

Banque de France - Centre de Recherche

Viktors Ajevskis

Bank of Latvia

Ugo Albertazzi

ECB -DG Monetary Policy

Niels Gilbert

De Nederlandsche Bank

Alexander Al-Haschimi

European Central Bank (ECB)

Sandra Gomes

Bank of Portugal

Friederike Bornemann

European Central Bank (ECB)

Claus Brand

European Central Bank (ECB)

Adriana Grasso

Bank of Italy

Giacomo Carboni

European Central Bank (ECB)

Christoph Grosse-Steffen

Banque de France

Markus Haavio

Bank of Finland - Research

Lena Cleanthous

Central Bank of Cyprus

Felix Hammermann

European Central Bank (ECB); University of Kiel; Deutsche Bundesbank

Agostino Consolo

ECB; European Central Bank; Bocconi University

Jonas Hölz

European Central Bank (ECB)

Giuseppe Corbisiero

Central Bank of Ireland

Samuel Hurtado

Banco de España

Luca Dedola

Bank of Italy; European Central Bank (ECB)

Patrick Hürtgen

Deutsche Bundesbank

Michael Dobrew

Deutsche Bundesbank

Stéphane Dupraz

Banque de France

Geoff Kenny

European Central Bank (ECB)

Michael Ehrmann

European Central Bank (ECB); Bank of Canada

Stephen Kho

De Nederlandsche Bank

Stephan Fahr

European Central Bank

Daniel Kienzler

University of St. Gallen

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research; Center for Financial Studies (CFS)

Christoffer Kok

European Central Bank (ECB)

Jarmo Kontulainen

Bank of Finland

Ansgar Rannenberg

Central Bank of Ireland

Annukka Ristiniem

European Central Bank (ECB)

Joost Röttger

Deutsche Bundesbank

Arthur Saint-Guilhem

European Central Bank (ECB)

Adriana Lojschová

Národná banka Slovenska

Matjaz Maletic

European Central Bank (ECB)

Sebastian Schmidt

European Central Bank (ECB)

Julien Matheron

Banque de France

Guido Schultefrankenfeld

Deutsche Bundesbank

Ifigeneia Skotida

Bank of Greece

Falk Mazelis

European Central Bank (ECB)

Michel Soudan

European Central Bank (ECB)

Aidan Meyler

European Central Bank (ECB); Economist; Post graduate student

Emanuel Moench

Frankfurt School of Finance and Management

Michael Sturm

European Central Bank

Carlos Montes-Galdón

European Central Bank

Dominik Thaler

Banco de España

Kalin Nikolov

European Central Bank (ECB)

Oreste Tristani

European Central Bank (ECB)

Galo Nuño

European Central Bank (ECB)

Lora Pavlova

Deutsche Bundesbank

Raf Wouters

National Bank of Belgium

Giordano Zev

Bank of Italy

Massimiliano Pisani

Bank of Italy

Date Written: September, 2021

Abstract

The ECB’s price stability mandate has been defined by the Treaty. But the Treaty has not spelled out what price stability precisely means. To make the mandate operational, the Governing Council has provided a quantitative definition in 1998 and a clarification in 2003. The landscape has changed notably compared to the time the strategy review was originally designed. At the time, the main concern of the Governing Council was to anchor inflation at low levels in face of the inflationary history of the previous decades. Over the last decade economic conditions have changed dramatically: the persistent low-inflation environment has created the concrete risk of de-anchoring of longer-term inflation expectations. Addressing low inflation is different from addressing high inflation. The ability of the ECB (and central banks globally) to provide the necessary accommodation to maintain price stability has been tested by the lower bound on nominal interest rates in the context of the secular decline in the equilibrium real interest rate. Against this backdrop, this report analyses: the ECB’s performance as measured against its formulation of price stability; whether it is possible to identify a preferred level of steady-state inflation on the basis of optimality considerations; advantages and disadvantages of formulating the objective in terms of a focal point or a range, or having both; whether the medium-term orientation of the ECB’s policy can serve as a mechanism to cater for other considerations; how to strengthen, in the presence of the lower bound, the ECB’s leverage on private-sector expectations for inflation and the ECB’s future policy actions so that expectations can act as ‘automatic stabilisers’ and work alongside the central bank.

Keywords: effective lower bound, euro area, European Central Bank, monetary policy strategy, price stability

JEL Classification: E31, E52, E58

Suggested Citation

Cecioni, Martina and Coenen, Günter and Motto, Roberto and Le Bihan, Herve and Ajevskis, Viktors and Albertazzi, Ugo and Gilbert, Niels and Al-Haschimi, Alexander and Gomes, Sandra and Bornemann, Friederike and Brand, Claus and Grasso, Adriana and Carboni, Giacomo and Grosse-Steffen, Christoph and Haavio, Markus and Cleanthous, Lena and Hammermann, Felix and Hammermann, Felix and Hammermann, Felix and Consolo, Agostino and Consolo, Agostino and Hölz, Jonas and Corbisiero, Giuseppe and Hurtado, Samuel and Dedola, Luca and Hürtgen, Patrick and Dobrew, Michael and Dupraz, Stéphane and Kenny, Geoff and Ehrmann, Michael and Kho, Stephen and Fahr, Stephan Alexander and Kienzler, Daniel and Georgarakos, Dimitris and Kok, Christoffer and Kontulainen, Jarmo and Rannenberg, Ansgar and Ristiniem, Annukka and Röttger, Joost and Saint-Guilhem, Arthur and Lojschová, Adriana and Maletic, Matjaz and Schmidt, Sebastian and Matheron, Julien and Schultefrankenfeld, Guido and Skotida, Ifigeneia and Mazelis, Falk and Soudan, Michel and Meyler, Aidan and Moench, Emanuel and Sturm, Michael and Montes-Galdón, Carlos and Thaler, Dominik and Nikolov, Kalin and Tristani, Oreste and Nuño, Galo and Pavlova, Lora and Wouters, Raf and Zev, Giordano and Pisani, Massimiliano, The Ecb's Price Stability Framework: Past Experience, and Current and Future Challenges (September, 2021). ECB Occasional Paper No. 2021269, Available at SSRN: https://ssrn.com/abstract=3928290 or http://dx.doi.org/10.2139/ssrn.3928290

Martina Cecioni (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Günter Coenen

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 7887 (Phone)
+49 69 1344 6575 (Fax)

Roberto Motto

European Central Bank (ECB) ( email )

Kaiserstrasse 29
Postfach 16 03 19
D-60311 Frankfurt am Main
Germany

Herve Le Bihan

Banque de France - Centre de Recherche ( email )

31 rue Croix des Petits Champs
Room 41-1391
75049 Paris Cedex 01
France

Viktors Ajevskis

Bank of Latvia ( email )

Riga, 1050

Ugo Albertazzi

ECB -DG Monetary Policy ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Niels Gilbert

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Alexander Al-Haschimi

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Sandra Gomes

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Friederike Bornemann

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Claus Brand

European Central Bank (ECB) ( email )

Eurotower
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+0049 69 13440 (Phone)
+0044 69 1344 6000 (Fax)

Adriana Grasso

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Giacomo Carboni

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Christoph Grosse-Steffen

Banque de France

Paris
France

Markus Haavio

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Lena Cleanthous

Central Bank of Cyprus

80 Kennedy Ave
1076 Nicosia
Cyprus

Felix Hammermann

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Agostino Consolo

ECB ( email )

Sonnemannstrasse 22
Frankfurt am Main, Hessen 60314
Germany

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, Hessen 60314
Germany

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Jonas Hölz

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Giuseppe Corbisiero

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Samuel Hurtado

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

HOME PAGE: http://www.bde.es

Luca Dedola

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Patrick Hürtgen

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Michael Dobrew

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Stéphane Dupraz

Banque de France ( email )

Paris
France

Geoff Kenny

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Michael Ehrmann

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344/7327 (Phone)
+49 69 1344/6000 (Fax)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Stephen Kho

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Stephan Alexander Fahr

European Central Bank ( email )

Kaiserstr. 29
Frankfurt am Main, DE 60066
Germany

Daniel Kienzler

University of St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research ( email )

Sonnemannstrasse 20
Frankfurt am Main, 60314
Germany

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Christoffer Kok

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Jarmo Kontulainen

Bank of Finland

P.O. Box 160
Helsinki 00101
Finland

Ansgar Rannenberg

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Annukka Ristiniem

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Joost Röttger

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Arthur Saint-Guilhem

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Adriana Lojschová

Národná banka Slovenska

Bratislava
Slovakia

Matjaz Maletic

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Sebastian Schmidt

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Julien Matheron

Banque de France ( email )

Paris
France

Guido Schultefrankenfeld

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Research Centre
Frankfurt/Main, DE Hesse 60431
Germany

HOME PAGE: http://www.bundesbank.de/research_guido_schultefrankenfeld

Ifigeneia Skotida

Bank of Greece

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Falk Mazelis

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Michel Soudan

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Aidan Meyler

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Economist

P.O. 559 Dame Street
Dublin 2, D2
Ireland

Post graduate student

Belfield
United States

Emanuel Moench

Frankfurt School of Finance and Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Michael Sturm

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Carlos Montes-Galdón

European Central Bank ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Dominik Thaler

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Kalin Nikolov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Oreste Tristani

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0049 69 1344 6000 (Fax)

Galo Nuño

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Lora Pavlova

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Raf Wouters

National Bank of Belgium

Brussels, B-1000
Belgium

Giordano Zev

Bank of Italy

Via Nazionale 91
Rome, 00184
Italy

Massimiliano Pisani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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