Volker Wieland's picture
Affiliation: 
Goethe University Frankfurt and IMFS
Credentials: 
Professor of Monetary Economics
Member of German Council of Economic Experts
Managing Director, Institute for Monetary and Financial Stability

Voting history

ECB Monetary Policy and Catch-up Inflation

Question 2: Which of the following policies is the most desirable to meet the ECBs objective to achieve its mandate of “price stability” as you understand this term.

Answer:
Inflation targeting
Confidence level:
Not confident
Comment:
Inflation targeting has its own problems. While symmetric price level targeting is better based on model evaluations I am still sceptical it can be implemented effectively. I am sceptical of asymmetric policies. They can make up for a downward bias in inflation due to the lower bound on nominal interest rates. A good way to implement a make-up strategy is to use a Taylor rule with make-up factor in communication. The Fed publishes such a rule in its policy report regularly. This can help to avoid a downward bias if it is given weight in public communication, because it relates directly to the policy instrument. At the same time, defining this more loosely at the level of target variables such as inflation rates or a price-level target path makes it quite a bit more dificult in my view. I remain sceptical there.

Question 1: To what extent do you agree with the following statement? “The European Central Bank should systematically allow for inflation to exceed its target to compensate for periods of below target inflation.”

Answer:
Disagree
Confidence level:
Very confident
Comment:
Make-up strategies including price-level targeting perform well in model-based evaluations under rational expectations and full credibility. The ECB has leeway to allow over- and undershoots of inflation. To promise credibly to provide a make-up for past inflation below target is difficult, however, and subject to lack of credibility and uncertainty. Furthermore a symmetric price level targeting that makes up for past overshoots as well as undershoots of inflation is quite a challenge to deliver. It would make it necessary to purposely tighten policy to keep inflation below the target rate of 2% to reach the price level target path consistent with a 2% trend. A purely asymmetric policy catch-up policy could overdo it and induce an upward bias.

Fiscal Rules in the European Monetary Union

Question 2: Which of the following is the one reform you would choose to improve fiscal rules?

Answer:
No change, stricter rules, or better enforcement
Confidence level:
Confident
Comment:
It would be sensible to put the focus on an expenditure-based rule in order to obtain a more transparent and enforcible handling of the rules. This can be achieved without a treaty change. The existing rules have been implemented in a very flexible manner. So lack of flexibility is not the problem.

Proposition 1: The existing fiscal rules for European Monetary Union members require revision.

Answer:
Agree
Confidence level:
Confident
Comment:
The existing rules are workable but need to be strengthened to achieve their goal "consolidation of finances in good times to create fiscal room for maneuver in bad times". Most importantly, they need to be followed. Too often they have been disregarded. Of course, the corona exception is the correct decision. However we need to get back to a stability-oriented and sustainable fiscal policy when the economy is back above the pre-crisis level. There are sensible proposals to switch to emphasize an expenditure-based rule without having to change the Maastricht treaty.

The ECB’s Green Agenda

Question 2: Would you support changing the ECB’s mandate to incorporate the EU’s target of carbon neutrality by 2050, if such a change is deemed legally necessary to adopt your preferred approach?

Answer:
No
Confidence level:
Extremely confident
Comment:
Achieving carbon neutrality of the EU economy by 2050 and achieving price stability in the euro area in the medium are two completely different objectives that require deploying different policy tools and can be achieved independently of each other.

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