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"Otmar Issing said the central bank would lose credibility if it shifted the inflation target."
"He said the job of the central bank is to actually hit the target, not shift the target once you have missed it."

Mmm this is designed to make it sound like changing the target would be akin to shifting the goals to claim you scored one.
But moving the target from 2 to 5% when you are stuck at 1% is quite the opposite. It's an increased recognition of having failed the economy.

As it is, the bank is aiming for too low, and failing to achieve even that.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Wed May 28th, 2014 at 01:39:15 PM EST
[ Parent ]
The dominant mantra is that the ECB is there to fight inflation, not to target any particular percentage. There isn't even the pretence of an effort to hit 2%.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed May 28th, 2014 at 02:47:05 PM EST
[ Parent ]
Deflation is the sign of virtue.

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by A swedish kind of death on Thu May 29th, 2014 at 05:02:28 AM EST
[ Parent ]
Deflation combined with growth.

And jobs.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 29th, 2014 at 07:49:17 AM EST
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Remember: strictly speaking 2.0% isn't the target but the ceiling.
by IM on Thu May 29th, 2014 at 12:32:36 PM EST
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So -2% is OK?
by afew (afew(a in a circle)eurotrib_dot_com) on Thu May 29th, 2014 at 12:41:10 PM EST
[ Parent ]
ECB: Monetary Policy
The primary objective of the ECB's monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term.

I'd say target is more accurate.

by generic on Thu May 29th, 2014 at 12:46:35 PM EST
[ Parent ]
true but "below". 1.8% is good, 2.3% not.
by IM on Thu May 29th, 2014 at 12:47:43 PM EST
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Even to replace the 2% "target/ceiling" with a 2% 5 year moving average would be a major advance, as it would force more reflationary policy after consistently undershooting the target for some years.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu May 29th, 2014 at 04:02:36 PM EST
[ Parent ]
No, that would be a bad idea, as it would force meritless contractionary policy after overshooting.

Last year's inflation is water under the bridge.

Now, if your inflation rate systematically undershoots during slumps, and systematically overshoots during booms, then it would indicate that you need more fiscal policy in your policy mix - because fiscal policy works directly on the real economy, while interest rate policy works only at one remove, if at all.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 30th, 2014 at 05:53:14 AM EST
[ Parent ]
1.8% is good, 2.3% not.
And when you get 0.8% you redefine "the medium term" to mean "the medium to long term".

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by Migeru (migeru at eurotrib dot com) on Thu May 29th, 2014 at 04:05:34 PM EST
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I don't agree. Below but close to 2% means 1.9999...%. And then you have a band around that where you want to be, the closer to the middle of the band the better, say 0.9999...% to 2.9999...%.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri May 30th, 2014 at 02:40:56 AM EST
[ Parent ]

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