For example, the flexibility provided for setting the medium-term budgetary targets reduces the margin to the 3% ceiling and thus increases the danger of exceeding this ceiling during an economic downturn. There are no corresponding operational rules providing in a legally binding way for greater adjustment during an economic upturn.
By providing additional monetary policy accommodation, the central bank can aim towards the upper region of the “BCDE” zone, so that the adjustment is closer to the “BCD” path. Before the onset of the pandemic (time t), inflation was expected to rise gradually towards the inflation aim (“π*”) along the “AD” path (the bold blue line).