eurosystem 2. 2. 1 communication about monetary policy objectives the price stability focus and the quantification of price stability as year - on - year increase in the harmonised index of consumer prices ( hicp ) below but close to 2 % over the medium term is one defining element in the eurosystem ’ s strategy. empirical research shows that in countries where central banks have adopted an explicit inflation objective. inflation is lower, inflation persistence is reduced and long - term inflation expectations are not correlated with lagged inflation. 1, 2 interestingly, long - term inflation expectations are also less responsive to macroeconomic news and monetary policy announcements than in countries where no explicit inflation objective has been announced. 3 for the euro area, the short time span since the beginning of emu does not yet allow for an in - depth empirical analysis comparable with these studies. however, empirical work has found that inflation persistence has been lower in those euro area countries that had an independent central bank and a clear price stability objective already before monetary union. 4 survey results for the euro area furthermore indicate that our definition of price stability is well understood and perceived as being credible. however, there are some indications that the general understanding of the monetary policy strategy could be further improved. 2. 2. 2 communication about the monetary policy stance central banks devote significant resources not only to explaining their objective and the general strategic framework to the public, but also to communicating the current policy stance. a fatas, i mihov and a rose ( 2006 ), quantitative goals for monetary policy, forthcoming, journal of money, credit and banking ; a t levin, f m natalucci and j m piger ( 2004 ), explicit inflation objectives and macroeconomic outcomes, ecb working paper no 383. l benati ( 2006 ), investigating inflation persistence across monetary regimes, mimeo. r gurkaynak, a levin and e swanson ( 2006 ), does inflation targeting anchor long - run inflation expectations? evidence from long - term bond yields in the us, uk and sweden, federal reserve bank of san francisco working paper no 2006 - 09. g coenen and a levin ( 2004 ), identifying the influences of nominal and real rigidities in aggregate - price - setting behaviour, ecb working paper no 418. this is achieved through a wealth of different communication tools, but one important aspect is the communication on the days when decisions are taken. owing to the high degree of predictability in the case of both the

the long shadow of high inflation 32nd frankfurt european banking congress 18. 11. 2022 | frankfurt am main | joachim nagel 1 introduction 2 inflation in the focus of public attention 3 scarring effects of personal experiences 4 monetary policy must act decisively to attain price stability 5 conclusion 1 introduction ladies and gentlemen first, i would like to thank you for the invitation. it is a pleasure and an honour for me to speak here to such a distinguished audience. “ a situation where ordinary people in their ordinary course of business are not thinking and worrying about inflation. ” [ 1 ] this is how alan blinder once defined price stability. unfortunately, we are far from that : almost everybody is thinking and worrying about inflation these days. the goal of price stability is currently being missed. that ’ s what the numbers tell us, and people are experiencing it first - hand. for many, soaring prices are the most pressing problem in their daily lives. accordingly, price developments have become the focus of public attention. the eurosystem is committed to price stability. we must ensure that high inflation rates do not become entrenched, and that they return to our target of 2 % in the medium term. we therefore have to act decisively. and that is exactly what we are doing in the governing council. i will go into more detail in the second part of my speech. but will high inflation also disappear from people ’ s minds once it has disappeared from the measurement of consumer prices? or could the present experience of unusually high inflation rates leave a lasting mark on people ’ s behaviour? what economic research has found on these questions and why it matters for monetary policy will be my first topic. 2 inflation in the focus of public attention to understand the impact of current price pressures, it is important to recall where we have come from. a long period of low inflation rates lies behind us. in low - inflation environments, households and firms tend to pay only little attention to inflation dynamics. [ 2 ] they have less incentive to track inflation closely as its relevance for economic decisions is relatively small. but the environment has changed fundamentally : inflation has returned with a force that hardly anyone thought possible. this year we are experiencing the highest inflation rates in decades. in germany, the annual inflation rate has reached double digits. the last time this happened was in 1951, more than 70 years ago. in this new environment, households and firms can no longer afford to ignore inflation. everyone is worried about their next gas and electricity bills and