Should the European Central Bank change its two percent inflation ceiling?

International Economy, The, Wntr, 2003

Keep it, with no exception for shocks.

MANFRED WEBER

General Executive Manager, Association of German Banks

T he present inflation target is sufficient to cover different developments in the euro area.

There should be no exceptions for shocks. When they happen, the ECB should explain why the target has been missed. With exception rules, it is difficult to define the end of the extraordinary situation. Presently, the structural rigidities in the labor market lead to higher unemployment, not to inflation.

The current arrangement avoids inflation as well as deflation. Price stability is a prerequisite for growth. The problem is not the interest rate level, but excessive taxes and social contributions and structural rigidities in the labor market.

Allow for exceptions or change the ceiling

BERYL SPRINKEL

Former Chairman of the Council of Economic Advisers and member of President Reagan's cabinet

Keep it to keep credibility.

MANFRED J.M. NEUMANN

Professor of Economics, Institut fur Internationale Wirtschaftspolitik, Universitat Bonn

I would leave the inflation ceiling at 2 percent to keep credibility. The ceiling is for the medium run, meaning that a temporary deviation of inflation is tolerable. The current inflation level is caused by too-rapid money growth rather than the too-rigid labor market. There will be no lasting improvement in real growth, absent structural reform in the large countries. If the ECB moves first, politics will not deliver structural reform but rely on the hope that monetary policy will work as a quick fix.

Change the ceiling or allow for negative supply shocks.

DR. JOHN MAKIN

Director of Fiscal Policy Studies, American Enterprise Institute

Don't touch the ceiling.

ALAN WALTERS

Vice President AIG Trading Limited, London

Leave the ECB's targeted ceiling as is. Our problem is not with monetary policy. It lies with structural adjustments.

JEAN GODEAUX

Former Chairman, National Bank of Belgium

Keep it for now to maintain credibility. But consider changes later.

NORBERT WALTER

Deutsche Bank Research

For now, the ECB still has to win credibility as guarantor of price stability. For tactical reasons it should not announce any change of its inflation target of up to 2 percent. It should, however, allow for exceptions now and lower its interest rates by 100 basis points because of the weak economy and a 25-30 percent risk of deflation in 2003.

After the euro gains more credibility and the present recession is over, the ECB should change to a 2 percent 0.75 target instead of today's vague formulation. This is to be preferred not least because ten accession candidates--most of them transition countries--with a bigger need for structural adjustments and ensuing higher price level increases will join soon.

Leave, the ECB's targeted ceiling as is.

CEES MAAS

Chief Financial Officer, ING Group

Change the ceiling or allow for exceptions.

PAUL TUDOR JONES

Chairman, Tudor Investment Corp.

Keep the ceiling. The ECB cannot give in to political pressure.

HORST SIEBERT

President, Kiel Institute for World Economics