Central Banks

ECB governing council member, Olli Rehn, remarks in a Reuters interview

  • The new economic realities guiding the Fed also applies to Europe
  • From an economic and social welfare view, it makes sense to accept a certain period of inflation overshooting while taking into account history of undershooting
  • It is worth exploring the merits of average inflation targeting
  • Recent indicators, especially services sector, have been somewhat disappointing
  • That amplifies the downside risk to the economic recovery
  • Recovery shape is best described as a truncated square root

As mentioned before, as much as all central banks would like to think that they are different from the Fed, you can’t ignore what the Fed does completely.

The ECB has put a lot of emphasis on ‘symmetrical’ price target but one can expect them to follow a similar approach to the Fed, even if CPI has not ‘overshoot’ since 2003.

His description of the recovery i.e. ‘truncated square root’ is a new one though.

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