Wieland compares the development of the Harmonized Index of Consumer Prices (HICP), on which the ECB bases its monetary policy decisions, with the GDP deflator and concludes that the HICP has exhibited higher fluctuations since 2007. Between 2013 and 2018, while the euro area economy was recovering after the debt crisis, the inflation rate based on the GDP deflator was significantly higher than the HICP.
Wieland also advocates taking owner-occupied housing into account in inflation developments - by either including it in inflation measures or picking it up in central bank communications.
Moreover, he shows that optimal monetary policy at the effective lower bound of nominal interest rates is a tricky business. Given the uncertainty about the effects and possible side effects of quantitative easing, it should aim to bring inflation to the inflation target from below more slowly than in normal times.
Volker Wieland
The decline of euro area inflation and the choice of policy strategy
in: ECB Forum on Central Banking: Central banks in a shifting world
Conference proceedings of the event held online on 11-12 November 2020
p.169-185, published in May 2021
(PDF)
The complete volume of the ECB conference proceedings is available here.