I would thus like to highlight three elements which helped to sow the seeds of a vicious relationship in this regard. Complacency and insufficient medium-term orientation of monetary policy The first was complacency.
With inflation seemingly under control following “the great moderation” of the 1990s amid intensified globalisation, many observers thought that monetary policy had greater degrees of freedom to devote to short-term demand management. Proponents of this view referred to this as “fine-tuning”19, whose theoretical counterpart was a form of “flexible inflation targeting” with an added emphasis on output stabilisation beyond inflation stabilisation.