It is hard to understand why the European Central Bank is currently so anxious to find new ways to make its policy stance even more expansionary. Its hyper-vigilance about falling prices is misplaced, and its ability to increase the rate of inflation is dubious.
BRUSSELS – Central banks aim for price stability, and today, prices are largely stable across much of the developed world. Yet central bankers declare themselves unsatisfied. Some policymakers, most notably at the European Central Bank, are even preparing further stimulus measures aimed at convincing financial markets of their resolve to fight deflation. But such policies overestimate the risk of falling prices.
BRUSSELS – Central banks aim for price stability, and today, prices are largely stable across much of the developed world. Yet central bankers declare themselves unsatisfied. Some policymakers, most notably at the European Central Bank, are even preparing further stimulus measures aimed at convincing financial markets of their resolve to fight deflation. But such policies overestimate the risk of falling prices.