Lower r* demands new ECB inflation target – economists
Average inflation targeting is one possible alternative, says Jordi Galí
A lower natural rate of interest requires the European Central Bank to modify its inflation target, and possibly to adopt average inflation targeting instead, economists say.
When the ECB carried out its previous policy review in 2003 “one of the key assumptions was that the natural rate of interest hovered around 2%, and that’s not the case anymore. I think that in itself calls for a change”, said Jordi Galí, economics professor at Universitat Pompeu Fabra in Barcelona.
The main policy focus
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