Is the European Central Bank Monetary Policy Framework Optimal for Economic Growth?

One of the more vital achievements of the Economic and Monetary Union is the fact that for the last 10 years it has succeeded in maintaining significant price stability in the countries which adopted the single currency. Actually, the consumer price rise index in these countries was rarely and rather briefly outside the 1.8 - 2.5 bracket,  which locates the Eurozone in the group of areas indicating the highest price stability in global economy. At the same time, high price stability in these countries is accompanied by a low rate of economic growth, much lower than that noted by their main economic competitors.  Since 1999, i.e. the moment the single currency was introduced, the rate of average real GDP growth in the countries of the Eurozone was most frequently within the 1.0-3.0% range, but revealed relatively high instability, typical of the classical model of cyclical development. Observation of changes in price growth index and economic growth indicator in these countries led to a conclusion that stabilisation of inflation, even in a long period of time, does not necessarily mean reducing cyclical fluctuations in economy. On the contrary, in some circumstances it may even enhance these fluctuations.

A low and changeable rate of economic growth co-existing with low inflation provokes a question: does maintaining by ECB the inflation target at a low level (about 2%) really promote economic growth in Eurozone countries? If the answer to this question was negative, then it would be necessary to consider whether ECB should resign from rigid inflation control in favour of more flexible monetary policy.

Without going into details of an absolute value of inflation target which ECB should aim at, it seems obvious that this value should not result from doctrinal, intuitive or commonsensical premises but from the ones which take into a broad view of price specificity of individual member countries and, in particular, historically developed inflation-economic growth relationships in such a country. Only then will the price rise control stop being a fetish but will become an object of conscious choice made with full awareness of the entire complexity of external and internal factors which may affect the course of real processes in economy.

 Data/Methods

                Critical analyzes of ECB monetary policy, focused on strict inflation targeting. Statistical analyzis and evaluation of means applied by ECB to support economic growth processes in Eurozone countries, based on Eurostat, OECD and national data.

Expected results

                The proof that ECB should change the methodology used by formulation its inflation target.

Key words: monetary policy, neutral inflation,  ECB monetary target, economic success indicator, economic growth, Not Decelerating Economic Growth Rate of Inflation (NDEGRI).