1 excess demand ( % ) - 1 all speeches are available online at www. bankofengland. co. uk / publications / pages / speeches / default. aspx but not in the united kingdom great moderation inflation ( % ) financial crisis and after inflationary, with trade - off inflationary, no trade - off - 6 - 5 - 4 - 3 - 2 - 1 excess demand ( % ) disinflationary, no trade - off disinflationary, with trade - off - 2 in these circumstances it has been critical for the bank of england to pursue flexible inflation targeting. 2 since 2013, the mpc ’ s remit has explicitly recognised that there are circumstances in which bringing inflation back to target too quickly could cause undesirable volatility in output and employment. it directs the mpc to “ promote understanding of the trade - offs inherent in setting monetary policy ” including importantly “ the horizon over which the committee judges it appropriate to return inflation to target ”. the mpc used this flexibility to support activity following the referendum in the wake of the large depreciation. in exceptional circumstances, like brexit, when the economy is facing profound structural change, the mpc can extend the horizon over which it returns inflation to target from above in order to balance the effects on jobs and activity. after all, even though monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the eu, it can influence how this hit to incomes is distributed between job losses and price rises. this flexibility cannot be used without limit of course, and the mpc has set out its framework for managing the trade - off including guidance for its tolerance of the overshoot of inflation. 3 developments in monetary policy in response to the challenging post - crisis environment, the conduct of monetary policy has made important advances that have helped to shape the expectations of both market participants and the public we serve. the ecb also has flexibility to pursue its inflation target, but given the absence of trade - off inducing shocks has not yet had cause to use it. the ecb general council adopted a quantitative definition of price stability in 1998 as a year - on - year increase in the harmonised index of consumer prices ( hicp ) for the euro area of below 2 % ; and from 2003, they clarified that this objective was to maintain inflation rates below, but close to, 2 % over the medium term. see carney m ( 2017

remarks to open policy panel mark carney, governor bank of england ecb forum on central banking – 20 years of european economic and monetary union sintra, portugal tuesday 18 june 2019 all speeches are available online at www. bankofengland. co. uk / publications / pages / speeches / default. aspx introduction it is an honour to participate in such a distinguished panel on such a special occasion. before i begin, i should emphasise that the usual caveat of the past providing no guide to future performance applies particularly to my remarks today. my reflections are on history alone. i am speaking in the mpc ’ s blackout period, so my comments have no bearing whatsoever on the decision to be announced by the mpc on thursday. there are no messages – coded or clarion – in what follows … about policy. but there is one message that my presence here today is meant to convey. i want to pay homage to president draghi ’ s extraordinary leadership of the ecb, the esrb, the fsb and, by example, of the g7 and g20. the crisis years here have been extraordinarily challenging but these challenges have been met because of his leadership, innovation and determination. the theme for this year ’ s conference is “ 20 years of european economic and monetary union ”. i will focus my remarks today on how monetary policy has evolved over that period, drawing on the experiences of the ecb and bank of england. economic performance the global financial crisis divides the past twenty years. in the decade prior to the crisis, in both the euro area and the uk, inflation was low, stable and predictable. inflation targets were achieved without causing undesirable volatility in output and employment, the so - called “ divine coincidence ”. 1 both regions experienced continuous expansions in activity. it is not entirely surprising that “ end of history ” declarations of the great moderation were increasingly commonplace. but such nominal stability masked growing financial imbalances and increasing strains in competitiveness. the financial crisis would expose how a healthy focus on price stability had become a dangerous distraction. central banks had won the war against inflation only to lose the peace. when the music stopped, the consequences for the real economy were dire. in both the euro area and uk, output fell by around 6 % and unemployment rates rose initially by 2½ percentage points. it took 7 years for gdp per capita to recover to pre - crisis levels. in response, the financial