currently pursued by all major central banks. naturally, there is a huge amount of uncertainty over how the economic environment will evolve, but this is probably less true for inflation. nonetheless, it is important to share a few insights into its possible trajectory. in the short term, the public health crisis is disinflationary, as exemplified by the drop in oil prices. inflation is currently very low, at 0. 3 % in the euro area and 0. 4 % in france in april ; granted, it is particularly tricky to measure prices in the wake of the lockdown, due to the low volume of data reporting and transactions, and the shift in consumer habits, temporary or otherwise. in the short term, our estimates suggest that the dominant effect will be that of price moderation, caused by the slower pick - up in demand than in supply. the mediumterm consequences are more open to debate, due notably to uncertainties over production costs, linked for example to health and environmental standards and the potential onshoring of certain production lines ; the differences between sectors could be significant, leading to variations in 1 / 5 bis central bankers'speeches relative prices rather than a general upward path. according to the different forecasts, overall inflation should not move above 1 % at least until 2021, which is in line with market expectations. this sluggishness in prices comes after a decade of persistently below - target inflation, which has averaged 1. 3 %. beyond these figures, i would like to underline three qualifying criteria for our inflation target, which are all interlinked. our inflation target of close to 2 % is symmetrical, flexible and mediumterm. – symmetrical : if our central target is perceived as a ceiling, we are less likely to reach it. clearly, therefore, we will be prepared in the future to exceed 2 % on certain occasions. – flexible : we cannot guarantee 2. 0 % either all the time or straight away. – and, consequently, medium - term. this medium - term target needs to be viewed in two ways : it is forward - looking, to guide inflation expectations ; but it cannot completely ignore the past either. should we go as far as targeting an average level of inflation of close to 2 %, and therefore explicitly compensate for any undershooting or overshooting of the target over time? this question remains open, and will be part of the “ strategic review ” of monetary policy that the ecb will pick up again in

mistake that a central bank makes is not failing to stop a bubble, but is rather not responding fast enough after a bubble bursts ". 6 15. i feel inclined towards the indirect approach to asset prices ; namely that monetary policy should be oriented toward enhancing price stability and smoothing fluctuations in gdp gap, while refraining from targeting asset prices directly, given the limited knowledge to correctly detect fundamental asset prices. there are a number of hurdles before a direct or preemptive approach can be adopted. these include the identification of a bubble, serious macroeconomic consequences ( such as a severe financial crisis after the bubble bursts ), the adequacy of using interest rate policy to deflate the bubble, and public support. however, i am not yet fully convinced by the argument that all the problems japan faced at that time would have been solved by the adoption of a flexible inflation targeting policy alone. lessons from the asset price bubble of the 1980s 16. now let me draw several lessons from the boom and bust of asset prices in the latter half of the 1980s. first, we should give priority to price stability as a policy objective over the apprehension of exchange rate fluctuations and the external imbalance. at that time, japan's current account surplus, coupled with the u. s. deficit, was perceived to be one of the major macro - economic policy issues, although the theoretical underpinning for rectifying the external imbalance was not solid enough. 7 moreover, a proposal on targeting the exchange rate was seriously debated in an attempt to solve the current account imbalance. 8 giavazzi and mishkin further mentioned, as the second lesson, the procrastination on the part of the japanese government in restoring the health of the financial system after the bubble burst. iwata ( 1991 ) carried out a simulation exercise on the future development of the u. s. - japan external imbalance based on the overlapping generations model in an open economy. the simulation results showed the possibility of long - sustained imbalance until the mid - 2020s, mainly reflecting economic fundamentals such as the difference between the two countries in saving ratio, productivity and population growth rate. according to prof. taylor ( 2007 ), the exchange rate policy of the u. s. government is today guided by several principles : ( 1 ) it must be supported by sound domestic policies, ( 2 ) it should rely on markets with a minimum of intervention, ( 3 ) it should minimize verbal intervention, ( 4 ) there is