ECB’s de Cos: Temporary Overshooting an ‘Important Point’ of Strategy Review Outcome
9 July 2021
By David Barwick – FRANKFURT (Econostream) – The explicit recognition of the possibility of temporarily overshooting the inflation objective is an important result of the European Central Bank’s strategy review, ECB Governing Council member Pablo Hernández de Cos said Friday.
In an article published in Spanish daily El País, de Cos, who heads Banco de España, said that the new strategy would ‘have a decisive impact on the euro area economy’.
De Cos criticised the ECB’s previous formulation of its price stability objective as having ‘contributed to the persistence of low inflation in the euro area by proving ineffective in anchoring inflation expectations to the inflation target.’ In the new policy framework, 2% would no longer cap inflation, he said.
Moreover ‘and perhaps more importantly for addressing the problem of the lower bound,’ he said, the commitment to symmetry demands that monetary policy react with particular forcefulness or persistence when up against the lower bound.
The possibility of temporary overshooting was ‘[a]n important point explicitly stated in the new policy framework’, he highlighted.
In addition to the ECB’s pre-existing monetary policy instrument, first and foremost among which were interest rates, he said, ‘if necessary to achieve the objective of price stability, we will consider new instruments.’
Measured inflation should reflect owner-occupied housing costs ‘when it will be technically possible’, he said.
‘Ultimately, all of us on the Governing Council of the ECB hope that these changes to our strategy will enhance our ability to fulfil the mandate conferred on this institution by the founding Treaties, which is so important for the economic prosperity and well-being of Europe's citizens’, he said.