The first of these is that monetary policy is generally committed to the objective of domestic price stability, whether in the context of a formal “inflation targeting framework” or not. If rates must be raised for macroprudential reasons when inflation is under control, then the inflation target may be undershot. Some worry that this could undermine the credibility of the whole regime.
Effective central bank communication means more effective policies Let me now turn to the topic of central bank communication. Central banks have come a long way in how they communicate. Public institutions, including the ECB, have moved in the direction of disclosing more information and better explaining policy, also in response to parliamentary and public demands.