ECB Shadow Council Minutes : Most Members opt for a symmetrical inflation target

Symmetric inflation target

According to the SC members, the strategy review of the ECB should focus on several areas: the inflation target, the measurement of inflation, the ECB’s policies and tools, transparency and climate change. Concerning the inflation target, most members would be in favor of a more symmetric goal of two percent. The main argument is that this would be clearer and simpler than the current definition. It was also mentioned that this would reinforce the credibility of the ECB’s Forward Guidance. One member argued that this could be also a starting point for a strategy of average inflation targeting, where the ECB will make up past misses of the inflation target in the future. Others, however, were more skeptical about this idea. Several members would also favor the introduction of a symmetrical band of plus and minus one percent around the two percent target.

Inclusion of Owner Occupied Housing (OOH) in the inflation rate
Concerning the inflation measure it was argued that it should include OOH. Several members said that this would better reflect the reality and also relieve monetary policy a little bit as it would add around 0.3 percentage points to the current inflation rate. If the ECB would have targeted such prices in the past, monetary policy might have been more accommodative in 2012 and 2013 but less accommodative from mid-2017 onwards, said one member.

There was a widespread consensus that the ECB should also review its monetary policy tools and their side-effects. Several members emphasized that this should involve a deeper analysis of the costs and benefits of the negative rate policy, as well as QE. Some members argued that the ECB should also improve the transparency of its decision-making process by publishing the voting records of its monetary policy meetings and more comprehensive minutes.

Climate Policy

The members argued that climate policy should be the responsibility of democratically-elected governments. Some members, however, argued that the ECB could contribute to such policies by incorporating climate risks into their internal models or by making potential changes to its collateral framework and asset purchases. It was emphasized that this should only happen without prejudice to its primary mandate of price stability.

Members’ individual votes on the ECB’s deposit rate (currently minus 0.5%):

Frankfurt, Germany
December 10th, 2019
Written by Jan Mallien