Although unconventional policy measures have alleviated this constraint to some extent, inflation in the euro area has been low for a long time, and, what’s worse, inflation expectations have drifted downwards. In the early years of its operation, the ECB was seeking to establish credibility when too high inflation was the main concern.
In the current environment of low rates and mostly negative demand shocks, however, the problem of too high inflation is more remote, and the problem of “lowflation” more relevant. The question now is rather: How do we ensure that inflation expectations will not forever stay anchored at too low a level?