the united states toward a full inflation - targeting regime. indeed, the mack versions would establish an inflation - targeting regime among the strictest in the world, given that it would have established price stability as the sole objective of monetary policy, not simply a hierarchical set of objectives. the saxton version is more in line with hierarchical mandates employed in many inflation - targeting regimes. these bills were, therefore, vigorously opposed by advocates of the dual mandate. perhaps because these bills formed the backdrop to the debate in the united states about the policy mandate, little discussion has taken place on the merits of moving to an explicit numerical inflation target in the context of the prevailing dual mandate. of course, another explanation for the lack of debate is that few are unhappy with macroeconomic performance under the current regime. b. mandates in inflation - targeting regimes new zealand in 1990 became the first country to establish a formal inflation - targeting regime. canada followed in 1991, the united kingdom in 1992, and australia and sweden in 1993. subsequently, finland and spain adopted inflation targeting ( before becoming members of the european monetary union ) and in the last few years several developing countries have adopted this approach. although the european central bank does not identify itself as an inflation - targeting regime, the maastricht treaty set price stability as the ecb's primary objective and the ecb has set an explicit numerical target for inflation. what is an inflation - targeting regime? inflation - targeting regimes generally identify price stability as the primary objective, usually in the context of a hierarchical mandate. they set an explicit numerical target for inflation and set a period over which any deviation of inflation from its target is to be eliminated, although some regimes provide escape clauses and other flexibility related to the pace of return to price stability. the inflation target is sometimes set as a point and sometimes as a range. in most cases, the inflation objective is set for a measure of overall consumer price inflation, the point or midpoint of the ranges is generally around 2 percent, and the ranges ( where employed ) are generally 2 percentage points wide – typically 1 percent to 3 percent. the time period prescribed for return to the inflation target following departures is sometimes explicit and sometimes not, generally in the range of eighteen months to two years. examples of inflation - targeting regimes in new zealand, the first inflation - targeting regime, the numerical target is set jointly by the minister of finance and the governor of the central bank and is currently a range of 0 percent to 3 percent, the

s inflation readings via base effects. chart 2 provides a more structural decomposition of inflation, based on recent dnb research. among the set of models we use at dnb, this one focuses particularly on capturing supply - side constraints. while the model supports the notion that supply - side shocks were dominant drivers of the rise in euro area inflation, it still attributes more than one third of the inflation dynamics to demand shocks. for the disinflation period, the decline in demand is particularly important. the contribution of demand has narrowed to less than one fifth relative to the peak. monetary policy – which is captured here largely as affecting demand – has thus supported the disinflationary process. but the reaction of monetary policy has also been important in the face of these supplyside shocks. even though monetary policy has less effects on supply bottlenecks or on food and energy prices, the public is particularly sensitive to these salient aspects. as a result, an extended period of above - target inflation and possible second round effects create the risk that high inflation will become entrenched and, at some point, that inflation expectations will drift away from the target. a timely return of inflation to target is therefore crucial. that ’ s why it is important for monetary policy to react forcefully to underline our commitment to price stability. © dnb taking a step back, many have argued that the ecb was too late in hiking rates. while i, with the benefit of hindsight, understand where that interpretation is coming from, i would like to make three points in defence of the governing council ’ s response. first, it is important not to reduce the monetary stance to the policy rates alone. the governing council adjusted its forward guidance long before and tapered its bond purchases under the app as early as december 2021. second, it is important to note that the energy shocks were a direct consequence of the unjustified russian invasion of ukraine. as such, these shocks were not only unprecedented, but with a war at the european borders, the uncertainty went beyond energy prices. in this situation, my colleagues and i on the governing council were wary to choke off the economy in light of possible contractionary effects of the war. finally, even if we had initially fallen somewhat behind the curve, the eventual response has been very forceful and united, thus underlining the governing council ’ s commitment to its 2 % inflation target over the medium term. this interpretation is also supported by a simple – so - called thick –