The ECB’s new inflation target from a short- and long-term perspective

Abstract

The ECB’s target was recently revised, specifying that the 2%-inflation-rate threshold must be applied symmetrically and with a medium-term orientation. In the current phase, characterized by high inflation rates and a growing risk of stagnation in the euro area, this revision of the monetary policy strategy is crucial for explaining the recent decisions of the ECB and forecasting their possible evolution. However, monetary policy can only become one of many policy tools in the euro area. Therefore, there is room for a compelling policy mix necessary to control excessive inflation and to support the medium-term sustainable growth of the European economy.