3 Relative price flexibility also hardly improved. Though monetary union resulted in inflation differentials in the euro area falling to a level comparable to the US, their persistence remained much greater: the euro area experienced a divergence in relative prices twice as large as the one observed in the US.
Analysis suggests it could take many years with a formal AIT rule to return the price level to target following a lowerbound episode, and a mechanical AIT rule is likely to become increasingly difficult to explain and implement as conditions change over time. 15 In contrast, FAIT is better suited for the highly uncertain and dynamic context in which policymaking takes place.