williams ( 2006 ), inflation targeting under imperfect knowledge, chilean central bank working paper no 398. see sahuc and smets ( op. cit. ) as well as christiano, motto and ristagno ( op. cit. ). however, we should not overstate the differences in the conduct of monetary policy between the euro area and the united states. on the one hand, the us central bank, too, assigns primary importance to price stability, as has been stressed on more than one occasion by the federal reserve ’ s most recent chairmen. for instance, the current federal reserve chairman himself argued ( and i quote ) : “ experience shows that low and stable inflation and inflation expectations are also associated with greater short - term stability in output and employment, perhaps in part because they give the central bank greater latitude to counter transitory disturbances to the economy. [ … ] in sum, achieving price stability is not only important in itself ; it is also central to attaining the other mandated objectives of maximum sustainable employment and moderate long - term interest rates. ” the ecb, for its part, aims to maintain price stability in the “ medium term ”, thus minimising economic fluctuation in the short term. in other words, in line with its mandate as enshrined in the maastricht treaty, the ecb is not indifferent to short - term economic growth trends. 2. 4 empirical results so, on balance, what have been the factors underlying the difference in approach between european and us monetary policy? from the empirical results we see that the overall persistence of inflation is basically alike in the euro area and in the united states, even though inflexibility is far more pronounced in the euro area. secondly, the evidence suggests that monetary policy impacts on the process whereby inflation expectations in the euro area are shaped. these expectations have remained basically in line with the quantitative definition of price stability provided by the ecb for the best part of the last ten years, and have displayed low variability, as can be seen in table 1. recent studies have confirmed the importance of a clear definition of price stability. for instance, the response of long - term interest rates ( which should respond better to the anchoring of inflation expectations ) to economic news has virtually disappeared. thirdly, structural analysis suggests that agents assign less importance to past inflation trends – one of the factors that determines the persistence of inflation mentioned above – in the euro area than they do in the

##ecd ”, economic policy, vol. 23, pp. 715 - 756. girouard, n. and c. andre ( 2005 ), measuring cyclically - adjusted budget balances for oecd countries, oecd economics department working paper, no 434. debrun, x., j. pisani - ferry and a. sapir ( 2008 ), government size and output volatility : should we forsake automatic stabilization?, european economy – european commission economic paper, no 316. of taxation and of the overall fiscal drag in the tax system. not only do europe ’ s governments have far higher revenue as a percentage of their gdp, they also show a broader quota of social security contributions in respect of direct and indirect taxation ( 15 % of gdp in the euro area, as against 7 % in the united states ), which tends to make the system more gradual. fourthly, redistributive policies are also expressed in other ways than through government expenditure, for instance through the regulation of labour markets. on the basis of a series of indicators such as minimum wages, the legal safeguards protecting those in employment and the unemployment benefit replacement rate, the united states is at a lower level than the average level for the eu. one way of measuring the magnitude of automatic stabilisers is the budget ’ s overall sensitivity to cyclical fluctuations in the economy, which can be expressed in terms of the elasticity of the primary budget balance ( as a percentage of gdp ) in relation to the output gap, in other words the gap between real revenue and its potential level. if budget policy is anti - cyclical, the coefficient should be positive ( in other words, it increases in a phase of expansion and decreases in a recession ). an oecd study gives us a correlation of 0. 48 for the euro area and 0. 34 for the united states. the lower overall budget responsiveness to the economic cycle in the united states can be ascribed both to lower current expenditure elasticity and to low tax responsiveness compared with most of the countries in the euro area. the discretionary component of budget policy, by contrast, can be measured by the variations in the primary balance adjusted to account for cyclical effects. according to the oecd ’ s figures, the budget balance in the united states, adjusted for the economic cycle, as a percentage of gdp shifted from a break - even situation in 1998, to a 0. 9