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From Eurointelligence today: Draghi vs Krugman
The ECB held two days of what appeared to be a useful conference to debate some ideas - though without agreeing on a course of action. The highlight was Paul Krugman's endorsement of a higher inflation target. This is what Krugman had to say:
The intense resistance of central bankers to regime change even after more than five years at the zero lower bound shows that the kind of policy stasis that afflicted Japan for almost two decades is a more or less universal phenomenon...And let's be blunt, there are already visible tendencies toward a similar loss of resolve in Europe, for example declarations by monetary officials that low inflation isn't really a problem because it's mainly driven by needed adjustments in debtor nations.
In the discussion of Krugman's paper Guido Tabellini said he agreed with Krugman that the inflation targeting regime needed to be reconsidered. As alternatives he also suggested a price level target, or a nominal income target.

From Bloomberg we hear that Otmar Issing said the central bank would lose credibility if it shifted the inflation target. And James Bullard of the St Louis Fed agreed. He said the job of the central bank is to actually hit the target, not shift the target once you have missed it.

Reuters reports that Mario Draghi was especially sceptical.

What would it mean for a German, for example, to have a 5% objective in the whole of the euro area... I don't even want to think [about] that.
Still hostage to German neuroses.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed May 28th, 2014 at 12:48:52 PM EST
Well, the Germans would say "Right, we're leaving the euro!", and we would reply "Don't let the door hit your arse!"

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed May 28th, 2014 at 01:02:09 PM EST
[ Parent ]
We would. But our governments would say 'please take us with you'.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed May 28th, 2014 at 01:07:39 PM EST
[ Parent ]
Applying to a privileged partnership with Germany. Like Renzi.
by IM on Thu May 29th, 2014 at 12:31:17 PM EST
[ Parent ]
IM:
Applying to a privileged partnership vassalage with Germany.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu May 29th, 2014 at 12:40:23 PM EST
[ Parent ]
A special relationship
by IM on Thu May 29th, 2014 at 12:46:41 PM EST
[ Parent ]
That one also depends on gunships.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu May 29th, 2014 at 01:13:01 PM EST
[ Parent ]
"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.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
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
[ Parent ]
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
[ Parent ]
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
[ Parent ]
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.

Index of Frank's Diaries
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".

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu May 29th, 2014 at 04:05:34 PM EST
[ Parent ]
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 ]
That is just realistic. Draghi is not the problem.

(Since he chairs the ECB I am a bit of a fan)

by IM on Thu May 29th, 2014 at 12:28:04 PM EST
[ Parent ]
Look, the German conviction that the 1923 hyperinflation caused Hitler in 1933 is a neurosis, to put it charitably. Brünning was applying austerity in 1931.

Don't they teach the history of the Weimar Republic in German schools?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Thu May 29th, 2014 at 04:03:20 PM EST
[ Parent ]
What are you talking about?

And indeed, the great depression , Brüning and austerity and Schacht and Mefowechsel are all very much part of the curriculum.

by IM on Thu May 29th, 2014 at 04:53:23 PM EST
[ Parent ]
I'm talking about "inflation => invading Poland", which is very much what German policy neurosis is about.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri May 30th, 2014 at 05:31:34 AM EST
[ Parent ]
That seems to be rather your neurosis.
by IM on Fri May 30th, 2014 at 09:13:50 AM EST
[ Parent ]
I'm not the one who insinuated Draghi is Faust's Mephistopheles. That would rather be Jens Weidmann.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri May 30th, 2014 at 09:17:28 AM EST
[ Parent ]
Draghi is devil in Weidmann's euro drama - FT.com  (September 23, 2012)
Whatever you need to know about Germany, you will probably find it somewhere in Goethe's Faust. But it is rare that wisdom is found in part two of the tragedy, one of the most revered and least read books in all of German literature. Someone who managed to dig up something truly remarkable from it was Jens Weidmann. The president of the Bundesbank cited Mephisto's advice to the Emperor, quoted above, that the simple solution to a lack of money is to print it
Mephisto's speech encapsulates Germany's ultimate nightmare about fiat money and about monetary union. It was clear from the context and the timing of the speech that Mr Weidmann would cast Mario Draghi in the role of modern-day Mephisto, though, obviously, he did not say so explicitly. Mr Weidmann's remarks concluded one of the most extraordinary two-week periods in the history of central banking. We are on the cusp of an important new development, one the Bundesbank abhors. The US Federal Reserve has adopted a new programme of quantitative easing and has become much more determined in guiding future expectations. The European Central Bank, which Mr Draghi heads, has announced an unlimited - though conditional - programme of bond purchases; a programme that jars with everything the Bundesbank stands for and believes in.
by Bernard on Fri May 30th, 2014 at 11:09:23 AM EST
[ Parent ]
I guess Weidmann hasn't read Faust 2 either. If he had, he would have noticed the country suffering from austerity before Mephistopheles comes up with his plan, and the neighbouring countries about to invade it. After a bout of inflation, things calm down, and, in the next scene, the new prosperity shows everything going fine, with some squandering the money, but others using it to get out of debt etc.

As Wedimann should know, having certainly read Faust 1, Mephistopheles is the one who "stets das Böse will und stets das Gute schafft." Draghi, Merkel and all the rest seem more determined in showing us what the road to hell is paved with.

Weidmann's misreading of Faust pales when compared with the FT, of course

Mr Weidmann did not highlight another cautionary tale from the play for economists. Faust in the final earthbound scene comes up with a plan for universal prosperity and happiness ... and promptly dies.
by gk (gk (gk quattro due due sette @gmail.com)) on Fri May 30th, 2014 at 11:27:15 AM EST
[ Parent ]
The first room of the Dokumentationszentrum at the Reichsparteitagsgelände in Nürnberg has a case with lots of huge bills presumably to indicate that things started with hyperinflation. I couldn't find anything comparable about Brüning.
by gk (gk (gk quattro due due sette @gmail.com)) on Fri May 30th, 2014 at 07:18:53 AM EST
[ Parent ]
I was talking about little things like school, you know.
by IM on Fri May 30th, 2014 at 09:12:59 AM EST
[ Parent ]
I know. But there's what they teach you at school and what "you" (i.e., not you personally...) retain.
by gk (gk (gk quattro due due sette @gmail.com)) on Fri May 30th, 2014 at 09:22:42 AM EST
[ Parent ]

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