An important rationale behind the two-pillar approach relates to the difference in the time perspectives relevant for analysing price developments and for forming private inflation expectations. Empirical analysis has shown that the inflation process can be broadly decomposed into two components. One is associated with the interplay between demand and cost factors at a high frequency.
The situation eventually stabilised, but that was not the end of the story. In the wake of the financial crisis, the global economy entered what we now call the “Great Recession”. Shortly afterwards, the euro area went through a banking and sovereign debt crisis. And the life of central bankers? Well, it changed.