Monetary Policy in the Crisis: Confronting Short-Run Challenges While Anchoring Long-Run Expectations

Benoît CŒURÉ * President, Autorité de la concurrence (French Competition Authority). Contact : bureau.presidence@autoritedelaconcurrence.fr.This article is based on a presentation given on September 28, 2023, at the invitation of the Breizh Macro Club of the Economics Department of the University of Rennes, and the roundtable of the OECD Competition Committee on November 30, 2022. The author would like to thank Agnès Bénassy-Quéré for her comments. The opinions expressed in this article are his own.

The crisis has exposed the balancing act lying at the heart of monetary policy. On the one hand, central banks are key participants in addressing short-term challenges that the economy faces. On the other hand, their crisis-fighting efforts have to be designed and made public in full consistence with their long-run price stability mandates. To successfully manage this balancing act, a clear distinction must be made between the monetary policy objective and the conduct of policy. The ECB’s strategic framework and the aim of maintaining inflation rates “below, but close to, 2% over the medium term” contain the necessary elements to achieve this balance. First, there is scope for inflation to vary within the range along the way to convergence with the medium-term policy aim of 2%, and many path configurations are possible. Second, the “medium term” itself is not a pre-set time span, but is dependent on the underlying shocks. This has enabled the ECB to react flexibly to the crisis, while remaining within the stable framework of its monetary policy strategy.