Policymakers should consider adjusting ECB’s target – BdF paper

European Central Bank, Frankfurt
The European Central Bank

Eurozone policymakers should consider changing the European Central Bank’s monetary policy target, a working paper published by the Banque de France argues.

In Should the ECB Adjust its Strategy in the Face of a Lower r*?, Philippe Andrade, Jordi Galí, Hervé Le Bihan and Julien Matheron present a dynamic stochastic general equilibrium model of the eurozone. The model simulates “trend inflation, imperfect indexation, and a lower bound on the nominal interest rate”.

In the model, any decrease in

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