These two features of monetary policy in the euro area – an overriding emphasis on price stability accompanied by a publicly announced, numerical definition of the inflation objective – are also key characteristics of inflation targeting strategies.
According to an influential definition, the inflation targeting approach “is characterised, as the name suggests, by the announcement of official target ranges for the inflation rate at one or more horizons, and by explicit acknowledgment that low and stable inflation is the overriding goal of monetary policy.”3 In practice however, the debate on the monetary policy strategy of the ECB has mostly focused on its differences from the theoretical notion of “flexible inflation targeting”.4 Specifically, the ECB itself has emphasised its reliance on two pillars: a broadly-based assessment of the outlook for future price developments and a prominent role for monetary analysis.