The core principles of the science’s consensus remain valid today. Page 3 sur 8 In particular the two first principles—central bank independence and the primacy of price stability—remain essential for the credibility of the central bank. We are benefiting from it today through the—so far—relatively firm anchoring of longterm inflation expectations despite the surge in current inflation. This being said, we should acknowledge that new questions have arisen with the unexpected return of high inflation. Let me highlight three. A first question is the slope of the Phillips curve. To the enduring debate of whether it had flattened since the 1970s we must now add the question of whether it could be steepening again in the current inflationary environment. The question is central to assess how to quell inflation without engineering a harder than necessary landing of economic activity. Second, we still have to understand better how inflation expectations influence actual inflation. In recent years, we have made considerable progress –including at the Banque de France—in measuring the expectations of firms and households, which are the ones that matter for price-setting and spending decisions. iv But there is still relatively little empirical work on how their inflation expectations map into their actual pricing and spending decisions. v What the extent of pass-through from inflation expectations to inflation is, or whether past inflation plays a role beyond inflation expectations remain open questions. vi  Page 4 sur 8 Third, what about forward guidance? It was a decisive input of science, thanks to Eggertsson and Woodford.

Loose monetary policy, in turn, may reinforce the economic momentum that is already under way, further feed optimism and thus favour the build-up of financial imbalances. Empirical evidence indeed suggests that stock market booms usually coincide with atypically low inflation. The run-up to the dotcom bubble in the late 1990s provides one particularly vivid example of this pattern.6  3/5  BIS central bankers' speeches  There are two responses to these sorts of monetary policy pitfalls. First, an appropriate calibration of the monetary policy horizon. Modulating the horizon over which the central bank aims to achieve its price stability objective depending on the shocks hitting the economy is a principle of prudent monetary policy. A demand shock calls for a shorter policy horizon; a costpush shock calls for a longer one. Importantly, this principle holds only if inflation expectations remain firmly anchored. Second, the central bank can minimise the risk of mis-calibrating monetary policy if it broadens the scope of its analysis to an encompassing set of observables, including monetary and financial variables. This also allows policymakers to monitor signs of the emergence of financial imbalances and to calibrate a “leaning against the wind” approach to monetary policy. The effects of the ECB’s monetary policy on the economy and the financial system The monetary policy response to the crisis has been central in restoring the bank lending channel and ensuring very accommodative financing conditions, which has paved the way for the euro area’s recovery and continued expansion.