This means we should normalise our monetary policy gradually and choose a mix of instruments that is robust to the wide range of plausible scenarios we could face. These tried-and-tested principles have proved instrumental for central banks in the past. We should remain true to them today. 1. Lagarde C. (2022), “Monetary policy normalisation in the euro area”, The ECB Blog, 23 May. 2.
In the ECB’s case, the price stability objective corresponds to 2% inflation over the medium term. 3. The natural rate of interest is the real interest rate level that contemporaneously brings output into line with its potential and stabilises inflation at the central bank’s target in the absence of transitory shocks or nominal rigidities. See Brand, C., Bielecki, M. and Penalver, A. (eds.)