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Time to Untie the ECB’s Hands

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ZURICH – The European Central Bank’s recent announcement that it will try to end asset purchases by this December means that it has confidence in its ability to achieve price stability. But those who decided that price stability should be the ECB’s single, overriding policy goal may have shot themselves in the foot, not least by denying policymakers much-needed flexibility.

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The ECB defines price stability as inflation “below, but close to, 2% over the medium term.” That is a lower inflation rate than even the Bundesbank achieved during its celebrated pre-euro history, and it is a tighter target than virtually all other central banks pursue. For some, too much of a good thing is apparently wonderful.

To be sure, the ECB’s definition of price stability was not a problem during the period between the global financial crisis and the adoption of quantitative easing, when inflation was well below 2%.........

© Project Syndicate