It seems likely that cross-country divergences will increasingly reflect exposures that countries have to various sectors. Thinking about heterogeneity at a sectoral level might therefore be more insightful for the euro area than focussing solely on cross-country comparisons. Consider trends in inflation. The Eurosystem has defined price stability as a positive inflation rate below 2% over the medium term.
2 At the same time, the effectiveness of lax policies remains unclear where inflation, core inflation, and inflation expectations are concerned. Nevertheless, fears of deflation appear somewhat magnified in light of historical evidence pointing to the absence of a clear negative relationship between deflation and growth.