The ability of the ECB to control inflation in a global environment

Christophe Blot (1) , Jérôme Creel (1) , Paul Hubert (1) , Fabien Labondance (1) , Xavier Ragot (1, 2)

1 OFCE - Observatoire français des conjonctures économiques (Sciences Po)
2 ECON - Département d'économie (Sciences Po)

In this paper, we study the global determinants of euro area inflation and show that they are large - they explain around 50% of inflation dynamics – and make it impossible for the ECB to fully control headline inflation. Nevertheless, we show that the ECB retains some control on the domestic part of euro area inflation. We therefore argue in favour of a change in the inflation target pursued by the ECB. Unless a change occurs, the ECB should promote cooperation with other central banks in order to match its CPI inflation target at 2% as 40 to 50% of CPI determinants is related to foreign yields and foreign output growths.

Domains: Economics and Finance

Christophe Blot, Jérôme Creel, Paul Hubert, Fabien Labondance, Xavier Ragot. The ability of the ECB to control inflation in a global environment. [Research Report] Parlement européen. 2015. ⟨hal-03472141⟩