Monetary Policy in the Crisis: Confronting Short-Run Challenges While Anchoring Long-Run Expectations

Benoît Cœuré Membre du directoire, Banque centrale européenne. Contact : office.coeure@ecb.int.


The crisis has exposed the balancing act lying at the heart of monetary policy. On the one hand, central banks are key participants in addressing short-term challenges that the economy faces. On the other hand, their crisis-fighting efforts have to be designed and made public in full consistence with their long-run price stability mandates. To successfully manage this balancing act, a clear distinction must be made between the monetary policy objective and the conduct of policy. The ECB’s strategic framework and the aim of maintaining inflation rates “below, but close to, 2% over the medium term” contain the necessary elements to achieve this balance. First, there is scope for inflation to vary within the range along the way to convergence with the medium-term policy aim of 2%, and many path configurations are possible. Second, the “medium term” itself is not a pre-set time span, but is dependent on the underlying shocks. This has enabled the ECB to react flexibly to the crisis, while remaining within the stable framework of its monetary policy strategy.


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