need to dismantle the absurd idea of an omnipotent central bank that can mechanically steer inflation. the ecb should clarify that it aims to deliver inflation of 2 % over the medium term. and it could communicate the range of inflation outcomes that can be considered acceptable in normal times. such a tolerance band, which can be more or less precise, is not an invitation for inaction or complacency. research shows that central banks have a strong incentive to already respond to inflation deviations within the tolerance zone, rather than waiting until inflation has crossed the edges. [ 15 ] and there is no convincing evidence that a tolerance band weakens the anchoring role of a midpoint. it rather recognises the large and inherent uncertainty surrounding price and wage decisions, conveys this uncertainty to the general public and its elected representatives and establishes consistency with the medium - term horizon of the ecb ’ s strategy. for this change to be effective, however, two elements are critical. first, the ecb would need to do more to communicate the midpoint to the broader public. a recent survey in the united states showed that only a quarter of respondent households knew of the federal reserve ’ s 2 % inflation aim. and, second, the ecb would need to establish a clear track record that emphasises the centrality of the midpoint in the conduct of its policy. the 2 % needs to remain the clear nominal anchor for coordinating both expectations and actions. which inflation expectations matter? the second element we should review relates to how we should evaluate expected deviations from the midpoint target. critics would dismiss the idea of tolerance bands around the inflation aim because they fear that, by signalling our comfort with a range of inflation rates below 2 %, we would entrench expectations of low inflation and risk downplaying the nominal anchor. i have two comments in response to these fears. the first is that we can no longer ignore the fact that medium - term inflation expectations of both professional forecasters and financial market participants have persistently adjusted lower. adaptive expectations are rational at times of deep structural change. my second comment is really more of a question : which expectations should central banks consider when evaluating risks to the inflation outlook? neither the academic community nor the central banking community have ever provided an answer to this question. i see a large gap between the role played by inflation expectations in our profession and the extent of central banks ’ actual knowledge about how expectations ultimately affect inflation outcomes and which expectations are

speech monetary policy : lifting the veil of effectiveness! " # $ speech by benoit cœure, member of the executive board of the ecb, at the ecb colloquium on “ monetary policy : the challenges ahead ” held in his honour frankfurt am main, 18 december 2019 in a few days, i will leave the ecb after eight years of unprecedented challenges for the integrity and stability of our single currency, the euro. [ 1 ] throughout these years, the ecb ’ s resolve and steadiness have been the cornerstone of europe ’ s crisis response and economic recovery. i feel grateful and humbled to have been given a chance to be part of this effort. i would like to thank former president mario draghi, my executive board and governing council colleagues, and the staff of this great institution for their friendship and trust. and i would like to wish isabel schnabel and fabio panetta the best of luck. the starting point for my remarks this morning is people ’ s sense of frustration and their criticism of central banks for failing to deliver inflation consistent with their aim. this criticism has taken different forms in society. professional observers and financial market participants often criticise the inadequate size of our actions and question the effectiveness of our instruments. private citizens criticise the type of instruments we use – in particular asset purchases and negative interest rates – and the side effects they associate with them. the use of these instruments has caused persistent mistrust. while three in four euro area citizens think the single currency is good for the european union and two in three think it is good for their country, less than half of citizens trust the ecb. in my remarks this morning, i would like to make two points that speak to these concerns. the first is that there is no contradiction between inflation being low and monetary policy being effective. central banks have achieved great success in recent years. their achievements, however, and this will be my second point, are of little avail if the public does not recognise or understand them. i will argue that this “ veil of effectiveness ” creates enormous challenges for the credibility and acceptance of central banks – challenges which can only be overcome by revisiting the appropriateness of four key components at the heart of our current monetary policy frameworks : how we define price stability, how we measure inflation, how we evaluate the credibility of our intentions and the range of counterparts through which we implement monetary policy. low inflation and the effectiveness of monetary policy my first point –