Price Stability and the ECB'S monetary policy strategy

Christian Bordes (1) , Laurent Clerc (2)

1 CES - Centre d'économie de la Sorbonne
2 Direction de la Recherche - Banque De France

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. Second, this paper focuses exclusively on the anchoring of short- to medium-term inflation expectations (Part 2). Several measures show that this anchoring is effective. A 'two-pillar' small structural macro-economic model framework is used to analyze 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. Third, we 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 6 years, various indicators from the theoretical analysis paint a fairly reassuring picture of the effectiveness of the device used by the ECB.

Mots clés: European Central Bank • Inflation • Monetary policy

Domaines: Economies et finances

Christian Bordes, Laurent Clerc. Price Stability and the ECB'S monetary policy strategy. Journal of Economic Surveys, 2007, 21 (2), pp.268 - 326. ⟨10.1111/j.1467-6419.2006.00504.x⟩. ⟨hal-00308557⟩