Both studies find that flexible exchange rates provide greater monetary independence and are consistent with the trilemma.10 More fundamentally, in a world of open capital markets, the Mundell framework would imply that, while the impact on interest rates from monetary policy actions may be more muted, more of the transmission of monetary policy will take place through the exchange rate.
As regards price developments, according to Eurostat’s flash estimate annual HICP inflation was 1.6% in October, after having declined to 1.7% in September from 2.3% in August. The recent decline in inflation is the combined result of favourable base effects, given in particular the strong rise in oil prices a year ago, and the recent significant fall in oil prices.