inflation, pass - through, and the pricing power of firms ”, european economic review, vol. 44, no 7, pp. 1389 - 1408. [ 16 ] the reality, of course, is much more complicated as digitalisation may affect competition in different ways. [ 17 ] see, for example, cavallo, a. ( 2017 ), “ are online and offline prices similar? evidence from large multi - channel retailers ”, american economic review, vol. 107, no 1, american economic association, pp. 283 - 303. [ 18 ] should increased profit margins merely reflect the outcome of lower competition, then this benign effect may be mitigated. related topics monetary policy policies central banking communication uncertainties inflation disclaimer please note that related topic tags are currently available for speeches and introductory statements to the press conferences ( with q & a ) from 2018 - 19 only. european central bank directorate general communications economic development sonnemannstrasse 20, 60314 frankfurt am main, germany tel. : + 49 69 1344 7455, e - mail : media @ ecb. europa. eu website : www. ecb. europa. eu reproduction is permitted provided that the source is acknowledged. media contacts copyright 2020, european central bank

speech how long is the medium term? monetary policy in a low inflation environment speech by isabel schnabel, member of the executive board of the ecb, at the barclays international monetary policy forum london, 27 february 2020 we are currently living through times of tremendous challenges for the conduct of monetary policy. although the actions of major central banks over the past few years have succeeded in easing financial conditions and thereby stabilising growth and inflation, current and expected inflation rates remain stubbornly below target, in spite of years of exceptional monetary policy support. subdued price pressures have given rise to widespread scepticism about the ability of monetary policy to bring inflation back to target. while it is widely accepted that central banks cannot fine - tune inflation in the short term, some now even doubt their ability to reach their objective in the medium term. today i would like to speak to these concerns by shedding light on some factors that may impede a more forceful and rapid return of inflation to levels closer to 2 %, focusing on the euro area. i will argue that the nature and properties of the shocks that have been hitting the euro area over the past few years require central banks to exercise more patience in reaching their inflation aim, in particular when approaching the effective lower bound. this implies that the medium - term horizon over which the ecb pursues the sustainable alignment of inflation with its aim is considerably longer than in the past. communication on the factors affecting the length of the medium term increases the public ’ s understanding of the ecb ’ s monetary policy, thereby also reducing the risks of a destabilisation of inflation expectations. a shock - dependant monetary policy in calibrating monetary policy, central banks typically distinguish between two broad types of shocks affecting the inflation outlook. the first type is demand shocks, which pull both output and inflation in the same direction. the euro area sovereign debt crisis is a good example. as credit conditions tightened in parts of the euro area, both the public and private sector cut back sharply on spending, thereby pushing down prices and wages. such demand shocks typically call for determined policy action. by acting swiftly and forcefully, central banks minimise the adverse impact of a decline in consumption and investment on prices and wages. supply shocks – the second type – are different, as they typically pull inflation and output in opposite directions. a sharp exogenous increase in oil prices, for example, pushes inflation up while harming growth and employment. to minimise volatility in