From this Financial Times article: In yesterday's press conference Mario Draghi was asked about the possibility of changing the ECB's inflation target. His answer is very revealing about the extreme asymmetric nature of monetary policy these days (or...
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- Mario Draghi forgets that the ECB target is asymmetric in nature. The target is below (but close) to 2%. That's a signal that falling below the target is ok while being above is unacceptable. Maybe this asymmetry is partly to blame for the difficulty of reaching 2%.
- In his speech he clearly states that lowering inflation is always easy but that raising inflation because of the zero lower bound is much harder. But this sounds to me like a very strong argument in favor of higher targets. The fact that he does not see it that way tells us that the ECB is really averse to higher inflation.
- The idea that the same asymmetry is present when it comes to inflation expectations might be realistic but, in my view, it sounds too pessimistic. It might be true that raising inflation is hard but not impossible. Setting a higher target should move inflation expectations in the right direction and help reach that target. The fact that he does not see it that way is, once again, a reflection of the asymmetric view of the ECB about inflation.