Vítor Constâncio: The future of monetary policy frameworks

Lecture by Mr Vítor Constâncio, Vice-President of the European Central Bank, at the Instituto Superior de Economia e Gestão, Lisbon, 25 May 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Ten years after the economic and financial crisis of 2007-09, the recovery in the euro area is resilient and  increasingly  broad-based  even  if  overall  risks  remain  tilted  to  the  downside.  Monetary  policy  plays  a  crucial  role  in  supporting  that  recovery.  Through  a  combination  of  interest  rate  cuts  and expansions of the Eurosystem balance sheet, the ECB provided the necessary degree of monetary stimulus to prevent an even deeper cyclical downturn and to avert the risk of outright deflation. The continuation  of  such  monetary  stimulus  remains  important  to  ensure  a  sustainable  adjustment  of  the inflation process towards levels consistent with the ECB price stability objective.

In advanced economies, many commentators have started discussing whether central banking will eventually return to the pre-crisis status quo, or whether the many innovative tools assembled to respond to the crisis will be a permanent feature or even whether monetary policy regime should undergo a more complete overhaul. My intention today is to engage in this discussion which can be divided  into  two  themes:  what  should  central  banks'  target,  and  which  tools  should  they  use  to  reach that objective?