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I don't particularly feel an obligation to comment on today's ECB monetary policy announcement and I think my regular readers have a pretty good idea about how I feel about the ECB these days. However, ECB chief Mario Draghi pulled out a traditional ECB phrase on the outlook on monetary policy that I think pretty well describes the ECB's problem and why we are in mess we are in.
I was saddened by the news that Robert E. Keleher has pasted away on May 27 at an age of 67. Keleher pioneered what he termed the Market Price Approach to Monetary Policy. I my view Keleher's work on monetary policy clearly was similar to Market Monetarism.
During the Great Moderation it was normal to say that the Federal Reserve and the ECB (and many other central banks for that matter) was following a relatively well-defined monetary policy reaction function. It is debatable what these central banks where actually targeting, but there where is no doubt that both the Fed and the ECB overall can be descripted to have conducted monetary policy to minimize some kind of loss function which included both unemployment and inflation.
Our friend Matt O'Brien has a great new comment on the Atlantic.com. Matt is one of the most clever commentators on monetary matters in the US media.
This is mostly for my Danish readers. The Danish translation of Milton Friedman's classic "Free to Choose" (Det Frie Valg) has now been republished by the Danish Free Market think thank Cepos. I am honnored to have written the preface for the new edition of the book.
The euro zone is suffering from deflationary pressures and there is an obvious a need for monetary easing. On the other hand Kenya do not have that problem. In fact Kenyan inflation (and NGDP) has risen sharply since 2009. In some sense you can say that Kenya has what the euro zone needs and it is therefor interesting to examen why Kenya inflation has risen in recent years. I should of course stress that I don't think the the euro zone need Kenyan monetary policy, but monetary developments in Kenya in recent years might nonetheless tell us how we could get monetary easing in countries like Greece and Spain - even if the ECB maintains it's "do-nothing" stance (in fact the ECB is passively tightening monetary policy on a daily basis these days).
Here is from Bloomberg:
< UPDATE: See an updated version of this piece here >
Today the ECB is very eager to stress it's 2% inflation target. However, a couple of years ago the ECB in fact had two targets - the so-called two pillars of monetary policy. The one was the inflation target and the other was a money supply target - the so-called reference value for the growth rate of M3.