15 Sep 2019

Global Trends in Inflation

Are Central Banks Barking up the Wrong Tree?

Daniel Gros

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The ECB will not be able to achieve its inflation target over the foreseeable future. Further expansionary measures will have at most a modest impact on financial market conditions and even less on overall demand. Moreover, the impact of any demand stimulus on inflation is highly uncertain. The reasons for low inflation persistence despite tight labour markets almost everywhere are not fully understood. It is a global phenomenon, but not necessarily due to globalisation. One global factor seems beyond dispute, namely a fall in global equilibrium real interests. However, different views of how the economy operates lead to very different views how central banks should react to this phenomenon.

There is little evidence that cooperation between central banks would have a significant impact on their (limited) ability to achieve their inflation targets.