Isabel Schnabel: A new strategy for a changing world

Speech by Ms Isabel Schnabel, Member of the Executive Board of the European Central Bank, at a virtual event series, hosted by the Peterson Institute for International Economics, 14 July 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Accompanying slides of the speech can be found on the website.

Last week the Governing Council of the European Central Bank (ECB) published its new monetary policy strategy. It was the ECB's first review of its strategy since 2003, with most features of the framework still dating back to its founding years.

Since those times, the world economy has changed in fundamental ways.

About half of today's ten largest global firms by stock market capitalisation did not exist when the euro was launched in 1999. In that year, imports accounted for around 30% of euro area economic activity; on the eve of the pandemic, this share had increased to 45%. And whereas in 2000 there were on average 24 people aged 65 and over for every 100 persons of working age in the euro area, this ratio stood at 32 last year.

These changes reflect three broad macroeconomic trends – digitalisation, globalisation and demographic change – that have had, and continue to have, profound consequences for the conduct of monetary policy.

Amplified by the two deepest economic contractions since World War II – the global financial crisis and the coronavirus (COVID-19) pandemic – they shifted the challenge for monetary policy from fighting too high inflation towards preventing too low inflation, or even deflation, a phenomenon our previous strategy had not envisaged.