Vítor Constâncio: The future of monetary policy frameworks
Lecture by Mr Vítor Constâncio, Vice-President of the European Central Bank, at the Instituto Superior de Economia e Gestão, Lisbon, 25 May 2017.
Ten years after the economic and financial crisis of 2007-09, the recovery in the euro area is resilient and increasingly broad-based even if overall risks remain tilted to the downside. Monetary policy plays a crucial role in supporting that recovery. Through a combination of interest rate cuts and expansions of the Eurosystem balance sheet, the ECB provided the necessary degree of monetary stimulus to prevent an even deeper cyclical downturn and to avert the risk of outright deflation. The continuation of such monetary stimulus remains important to ensure a sustainable adjustment of the inflation process towards levels consistent with the ECB price stability objective.
In advanced economies, many commentators have started discussing whether central banking will eventually return to the pre-crisis status quo, or whether the many innovative tools assembled to respond to the crisis will be a permanent feature or even whether monetary policy regime should undergo a more complete overhaul. My intention today is to engage in this discussion which can be divided into two themes: what should central banks' target, and which tools should they use to reach that objective?