ECB Governing Council member Olli Rehn urged the central bank to rethink it’s policy framework after failing to lift inflation back to target. One explanation for the failure could is that “trust in central banks’ ability to influence the inflation rate may have eroded.”
He noted that “the interdependence of economic activity and inflationary pressures seems to have weakened in recent years.” And, “should this phenomenon prove to be lasting, it would imply a weakening of the impact monetary policy exerts on inflation via aggregate demand.”
But he also emphasized that “this would not mean questioning the primary objective of price stability”. Instead, the policy rethink would “entail a comprehensive review of the guiding principles, key assumptions and tools used for the implementation of monetary policy”.
