The ECB’s New Inflation Plan Is Like the Old Plan. But Worse.

Old, absurd, and unfit for purpose; how else to describe the “new” monetary framework for euro monetary policy presented by ECB Chief Lagarde amidst much fanfare on Thursday, July 8?

Why old? The “new” framework is remarkably similar to that unveiled in May 2003.

Why absurd?  The main rationale put forward for the framework is to work around a problem of the “zero bound”.  That problem, however, is of the ECB’s own making.

Why unfit for purpose?  Chief Christine Lagarde tells us that the review has been undertaken to make sure that “our monetary policy strategy is fit for purpose both today and in the future”.  But she considers no critique of that strategy and advances no rebuttal of any.  She does not explain why she expects better results from a plan that so similar to the strategy that’s been pursued during the past quarter century.

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