And the simplest, most logical and most elegant explanation is that, even if “hardwired” nominal and real sluggishness introduces persistence into the inflation process – which in itself tends to perpetuate past inflation pressures into the future 14 – a great portion of that persistence can be eradicated if the expectations of price and wagesetters are focused on the objective of the central bank.
Indeed, another ECB study finds that the influence of the ECB’s numerical objective of price stability on the evolution over time of inflation outweighs the influence of past shocks, and thus to a great extent compensates for the added inertia resulting from a more rigid economic structure.