It is sometimes pointed out that one of the problems with make-up strategies is that their strict symmetric application may create problems for the credibility of the strategy. For example, if there is a commitment by the central bank to react equally to both inflation undershooting – which, as we have seen, are the really problematic deviations in the current context – and overshooting, we could find that, following a period of above-target inflation the central bank would have to reduce inflation below the target, which would require depressing economic activity and employment. Given that such a commitment may not be entirely credible, it has recently been proposed that such strategies be temporary. In other words, the central bank operates normally within a traditional inflation targeting framework, but, in the event of a low inflation crisis driving  12  See Banco de España (2020a) for a detailed discussion of make-up strategies. 16  interest rates close to their lower bound, it commits to a make-up strategy to recover the “lost inflation” over that period in the future.13 Against this background, in late August 2020 the Federal Reserve announced the main findings of its strategic review. Among other changes, it has adopted a new asymmetric average inflation targeting strategy, albeit without specifying some of the parameters of this strategy, such as the length of the period over which the average inflation to be stabilised is calculated.
For instance, after a strong pick-up in 2020 Q3, the GDP growth rate returned to negative territory (-0.6%) in Q4 as a result of the pandemic containment measures being reintroduced in most countries. Thus, at end-2020 GDP was still 5% below the level recorded in 2019 Q4. Drawing on the ECB projection exercise conducted prior to the spread of the pandemic (published in  2  See, for example, the October 2020 bank lending survey (BLS). See Menéndez-Pujadas and Mulino (2020) for a summary of the results of the survey for participating Spanish banks. 3  See Alves et al. (2020) and Alves et al. (2021) for further details on the developments in financing granted to firms and households in the context of the COVID-19 crisis. 4  December 2019), at end-2020 GDP was 6.3% below the level forecast for the end of that year. By country, among the four largest euro area economies, the output loss was more pronounced in Spain (9.1%) than in Italy, France and Germany (down 6.6%, 4.9% and 3.6%, respectively). Also of note is the heterogeneous cross-sector impact of the pandemic, which is mainly affecting services. Much uncertainty also persists regarding the intensity of the recovery in the early stages of 2021, in view of the recent course of the pandemic in Europe. The available short-term indicators signal a slowdown in activity so far this year. Should the additional health crisis containment measures endure across the board, a fresh contraction in some countries or sectors cannot be ruled out.