Should the ECB prioritize jobs and the environment?

Credit: Glen Gyssler

Jeff Cockrell | Nov 19, 2020

In the coming year, the European Central Bank will conclude a broad review of its policy strategy to determine if and how it should change its goals and priorities. Currently, the ECB’s primary objective is price stability—managing inflation—as opposed to the US Federal Reserve’s dual mandate of pursuing price stability and maximum employment. Should the ECB’s goals be revised to make maximum sustainable employment an aim on par with price stability? Should the ECB factor the environment into its decisions? And what should price stability mean, in terms of a target rate for inflation?

To investigate these questions, Chicago Booth’s Initiative on Global Markets surveyed its European Economic Experts Panel. The breadth of opinion expressed for each question may underscore the challenges the ECB faces as it considers changes to its policy focus.

Jan Pieter Krahnen, Goethe University Frankfurt
“Since in monetary policy credibility is king, the ECB should not change but rather hold onto its inherited objective.”
Response: Disagree 

Marco Pagano, University of Naples Federico II
“Why 2 percent rather than 1 percent or 3 percent? Where is the scientific background for this particular number? I suspect NONE.”
Response: Uncertain

John Van Reenen, MIT
“There is a need for symmetry as low inflation is as bad as high. There is a good argument for targeting a higher rate like 3 percent or 4 percent to avoid the zero lower bound.”
Response: Agree

Pol Antràs, Harvard
“It seems like there should be other entities that can more directly take charge of environmental regulation.”
Response: Disagree

Christopher Pissarides, London School of Economics and Political Science
“A no-brainer. We need to save the planet; everyone should take into account the environmental implications of their decisions, even the mighty.”
Response: Strongly agree

Antoinette Schoar, MIT
“The ECB does not have effective tools to achieve environmental goals. Policy makers, consumers, and voters need to take responsibility for this.”
Response: Uncertain

Jordi Galí, Barcelona Graduate School of Economics
“Even though the current emphasis on the inflation objective as a ‘medium term’ objective already allows for that.”
Response: Agree

Christian Leuz, Chicago Booth
“While I can see arguments for the Fed or Bank of England, it would be much harder for the ECB with so many European countries. Employment is better addressed with fiscal policies.”
Response: Disagree

John Vickers, Oxford
“Monetary policy can best contribute to maximum sustainable employment by maintaining price stability, so that should be primary.”
Response: Disagree