8 By exploiting this link, our monetary analysis (consisting of a comprehensive assessment of liquidity and credit conditions) may provide early information on developing asset price imbalances and, therefore, allow for a timely response to the implied risks to price and financial stability. Thus, the ECB’s two-pillar strategy may represent a practical way of mimicking the “leaning against the wind” approach.
The bad scenario: the complexity of inflation forecast The problem is that one cannot be sure that this benign scenario will come true. Forecasting inflation is a difficult task – this holds in particular for times of increased uncertainty like in the aftermath of a financial crisis and, more recently, political exceptionality. Even in normal times, the models may be wrong.