fed speech, 2006-01-18
This is not surprising since some stabilisation channels are at work in a currency area: in particular, a credible monetary policy should bring about a convergence of expected inflation towards the definition of price stability, leading progressively to the convergence of ex ante real rates across the area; moreover, lower inflation relative to other trading partners increases price competitiveness, which in turn counteracts the initial effect of higher real interest rates.
Sentiment: neutral
Topic: mp_inflation