Photo: Bank Of Italy
In a speech in Rome, ECB chief Mario Draghi explained why the ECB has made so many poor decisions (most notably rate hikes in early 2011 and early 2008, on the eve of major disasters).The definition of the objective is now wider. Price stability has become an essential parameter in defining and measuring prosperity. From taking a relaxed approach to inflation and considering it secondary, nowadays low and predictable inflation is a pre-eminent criterion of economic performance.
Of course, Mario Draghi was saying this as a good thing, but really, it’s this obsession with inflation (which is mandated) that causes the ECB (whose roots are in the bundesbank) to do almost nothing for the countries that are in the middle of deflationary depressions.
While it’s certainly true that Weimar-like or Zimbabwe-like hyperinflation would not be good for prosperity, the idea that price stability is a “defining” parameter of prosperity is silly.
(Via Karl Whelan)