Francesco Papadia writing in the Bruegel...>

ECB VIEW: Francesco Papadia writing in the Bruegel blog highlights how the ECB

has changed its view of inflation, at least according to an analysis of Draghi

and Constancio speeches. Papadia highlights the ECB has shifted from "a

small-country model in which the pass-through of exchange-rate movements to

inflation is the dominant force, to a large-country model in which conditions in

the labour market, as conceptualised by the Phillips curve, have more

importance".

- Papadia posits possible reasons why it took so long to make this shift 1)

Intellectual inertia 2) Duisenburg came from a 'small country' but the change

began under Trichet. 3) The euro was an unprecedented experiment. 

- The shift of ECB emphasis upon the FX rate is also backed up by studies

showing how the pass through from the FX rate to inflation has wilted over time

and Papadia picks up on a speech by Coeure with a Hahn model to back this up.