ECB's Draghi on Inflation Target

The video discusses the debate on whether to revise the inflation target, either downward or upward, and the implications of such revisions on the credibility of central banks. It highlights the potential increase in real interest rates and the historical reasons for maintaining a 2% inflation target, emphasizing the importance of this target for price stability and economic growth.

What is one reason the central bank is against revising the inflation target upward?

• It would increase the central bank's credibility.

• It would decrease the risk premium.

• It would immediately stabilize prices.

• It would challenge the central bank's credibility.

What is a consequence of undermining the central bank's credibility?

• It increases the risk premium.

• It decreases the risk premium.

• It immediately boosts growth.

• It stabilizes the economy.

How does revising the inflation target affect real interest rates?

• It decreases real interest rates.

• It stabilizes real interest rates.

• It increases real interest rates.

• It has no effect on real interest rates.

What is a potential immediate effect of accepting a lower inflation target?

• A decrease in real interest rates.

• An increase in real interest rates.

• Immediate economic recovery.

• Stabilization of inflation.

Why did central banks in the late 90s decide on a 2% inflation target?

• To immediately boost economic growth.

• To increase flexibility in exchange rates.

• To provide a cushion for wage and price adjustments.

• To decrease the risk premium.