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Author(s): Petra M. Geraats, University of Cambridge
ECB Credibility and Transparency - Petra M. Geraats (816 kB)
This paper argues that ECB credibility in delivering price stability is
being progressively eroded; this problem could be overcome by embracing greater
transparency especially about the ECB’s objectives, macroeconomic forecasts and
decision-making.
During the ECB’s first decade, average inflation in the euro area has been low,
but it has failed to meet the ECB’s criterion of below but close to 2% over the
medium term. Although this could be attributed to unanticipated shocks, the
analysis in this paper points to some structural shortcomings. In particular,
there has been an upward trend in medium and long term inflation expectations
in the euro area, which have even reached over 2%, and the credibility of the
ECB achieving price stability in the medium term has gradually eroded to
critically low levels. In addition, there is evidence that medium and long term
inflation expectations are negatively affected by the inflation experience of
the euro area. However, this paper argues that these problems could be overcome
embracing by greater transparency, especially about the ECB’s objectives,
macroeconomic forecasts and decision-making.
JEL classification: E52, E58
doi:10.2765/82582
KC-AI-08-330-EN (online) | |
ISBN 978-92-79-08255-9 (online) | |
ISSN 1735-3187 (online) | |
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