increasing policy space, such as raising the inflation target, or relying more heavily on fiscal policy to fight recessions and to keep inflation and interest rates from falling too low. the federal reserve renewed its policy framework just recently and decided to move to average inflation targeting. the fed has chosen a policy framework that can be characterised as flexible without being too rigid in its parameters. with it, the fed emphasizes the goal of reaching maximum employment, implying that inflation could temporarily somewhat overshoot its 2 percent target, if that means more americans stay in and join the workforce. it is often argued that strategies that include overshooting of the inflation target are vulnerable to a time - inconsistency problem. we will today have a chance to listen to james bullard, president of the st. louis fed, who will give his take on this and more broadly on the fed ’ s strategy review. these lower - for - longer, or ‘ make - up ’ strategies also include variants of price - level targeting. in the model simulation exercises, make - up strategies turn out to be effective in reaching inflation targets in the medium term, as they take past deviations from the target into account – in other words, this time “ bygones are not bygones ”. in my view, we in the eurosystem should be open not only to a genuinely symmetric price stability target, but also to considering make - up strategies as a way to strengthen the commitment to symmetry. consequently, while a symmetric inflation target and a reaction function, preferably with a makeup strategy, would help us in achieving our price stability mandate, it would, of course, be no silver bullet alone. rather, it would be one key building block of how the review can enable the ecb ’ s monetary policy to better achieve its inflation aim and to better support sustainable growth and a higher level of employment in the coming years. monetary and fiscal interaction as we know, the ecb ’ s monetary policy is now very accommodative ; in parallel, the euro area member states are providing very substantial fiscal stimulus. importantly, monetary policy and fiscal policy now work hand in hand and reinforce each other, providing a safety net until the covid - 19 crisis phase is over, and hopefully a trampoline for stronger growth beyond it. the smart coordination this time around reminds me of what tommaso padoa - schioppa used to say about central banks, “ independence does not mean isolation. ” it is

of working life and period of retirement into account when making decisions on consumption and labour supply. in the face of an expected extension of the period of retirement, consumers of working age will make appropriate provision by increasing their savings. conversely, expectations of a longer working life will boost the consumption of the working - age population in step with higher expected permanent income. path 3. on the other hand, the analysis indicates that if, instead of increasing pension contributions, pension replacement rates were reduced, households would respond by increasing their labour supply, and the loss in economic activity would remain far smaller. the required reduction in pensions would, however, be drastic, and so would its social and political costs. if it were to materialise, the large global increase in public pension contributions would not only mean an intergenerational income transfer, but could also entail losses in employment. at the same time, the growing fiscal cost of elderly care would increase pressure to raise taxes. it is doubtful whether pension contributions could really rise this much, particularly at a time when the increasing mobility of both labour and capital is reducing national governments'room for manoeuvre in taxation. the effort to achieve a more sustainable base for our pension systems has in recent years been a key plank of economic policy throughout the developed world. the sustainability of pension systems can, of course, also be improved by postponing retirement. this, would increase the number of people paying in and reduce the number of people receiving benefits. postponing retirement would slow the growth in pension expenditure, increase the supply of labour, improve the return on investments and accelerate economic growth. for the financial markets, the most important feature the various pension reforms all have in common has been the attempt to reduce the role of pay - as - you - go schemes in providing an income for the elderly. this does not necessarily mean the increased use of funded schemes within public pension systems. macroeconomically, the same result could be achieved simply by reducing or restricting access to the benefits of pay - as - you - go schemes. these types of reform would mean a reduction in the transfer of income from future age cohorts to present cohorts. as a result, the present generation's expected income flow would be reduced, people would become keener to take out private pension insurance to bridge the gap, and the saving ratio of the economy as a whole would rise. we all know how difficult such reforms would be politically. it is interesting to note that the