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

Benoît Cœuré * Président, Autorité de la concurrence, Paris. Contact :

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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Ce texte est tiré de l’intervention de l’auteur aux Journées de l’AFSE (Association française de science économique) 2013, « La crise de l’Union économique et monétaire (UEM) : enjeux théoriques et perspectives de politique économique », université d’Orléans, 17 mai 2013. L’auteur tient à remercier Frédéric Holm-Hadulla et Massimo Rostagno pour leurs contributions à cet article. Il reste seul responsable des opinions exprimées ici.

1   Pour une illustration, voir le graphique 2.13 in Fahr S., Motto R., Rostagno M., Smets F. et Tristani O. (2011), « A Monetary Policy Strategy in Good and Bad Times: Lessons from the Recent Past », document de travail de la BCE, n° 1336, mai, p. 52.

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