Le mot du jour: “Assymetry”

Lars Christensen posts on “assymetries”.

This is Jens Weidmann:

“The euro zone is recovering only gradually from the harshest economic crisis in the post-war period and there are few price risks. This justifies the low interest rate…Low price pressure however cannot be a licence for arbitrary monetary easing and we must be sure to raise rates at the right time should inflation pressure mount.”

It is the second part of the quote, which is interesting. Here Weidmann basically spells out his preferred reaction function for the ECB and what he is saying is that he bascially wants an asymmetrical monetary policy rule – when inflation drops below the ECB’s 2% inflation target the ECB should not “arbitrary” cut its key policy rate, but when inflation pressures increase he wants the ECB to act imitiately.

I don´t see that as differing much from thought widespread at the Fed:

The Fed has been missing its inflation target for much of the period much since the start of the financial crisis in mid-2007.

In November, officials’ preferred inflation measure, the personal consumption expenditures index, stood at just 0.9%, under half policy makers’ stated 2% goal. This causes some of the more dovish observers to argue the central bank treats its target as asymmetric — that is, it is more concerned about overshooting than underachieving.

HT Becky Hargrove

3 thoughts on “Le mot du jour: “Assymetry”

  1. Excellent blogging.
    Worrisome: No recovery lasts forever. The Fed is running the risk we hit the next recession while still near ZLB…so the only recourse will be to QE…but they are uncomfortable with QE…

  2. I don’t agree with Mr. Weidmann on much of anything. But Scott had a post a while back about the much higher degree of flexibility in German economy versus the rest of the EZ, and it is certainly much better than the US; and so the major thrust of my disagreement with Mr. Weidmann is not necessarily the what, but the where – the scope of application of his preferred monetary policy regime. If the German economy can handle it and the elected German officials are OK with what he’s doing then, by all means, they have a right to be wrong – it’s up to the Germans to sort it out at the ballot box. What I have a problem choking down is his view of it being one-size-fits all and insisting that the ECB shove that down the throats of citizens of other countries that have no recourse. It’s highly undemocratic and tyrannical.

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