Examples of economic analysis - the Generation ?uro Students' Award

What you have to do
• You are in charge of price stability over the medium-term.
• Your objective is to to write an essay explaining the reasons for your interest rate decision
by referring to the underlying economic and monetary analysis.
• You also need to explain your inflation outlook as well as the various risk factors.
1 st , what is the medium term?
• It is a timeframe between the short-term – i.e., a period of one or at most two years - and the
long term which can last several more years – say the completion of a business cycle: not to
paraphrase JM Keynes (that in the LT we all passed away).
• Thus for all practical purposes your time-frame is of about 2-3-4 years.
2 nd, your mandate is to maintain inflation close but below 2% over the medium term:
– This is your price stability objective a year-on-year increase of HICPs < 2% over MT
– If there is no incompatibility, then you can consider also other objectives that are ancillary, like
economic growth and employment
– but let’s simplify this essay and only focus on price stability (that is difficult enough)
3 rd , why does the choice of timeframe in which you need to achieve your objective greatly matter?
• Because every month, or quarter, price dynamics are affected by a great variety of shocks, or
news, or self-reverting events (like a strike, some temporary disruption, or other short lived
blips)