1. One
important talking point this year has been Irish inflation and
the criticism directed at Irish spending plans by the
Commission and Ecofin. But you say inflation is not the
problem in Ireland, it’s the answer
[James
Morgan]
...
Ireland needs an adjustment policy…has
budget surplus, falling debt/GDP ratio … current account
surplus, rising productivity. Ireland is right to adjust by
raising the real exchange rate
...
[Jordi Galí]
2.
Would
that solution be appropriate for Spain?
[James
Morgan]
Might not apply to Spain. No surpluses ... productivity
flat ... need for fiscal measures ...
[Jordi Galí]
3. You
attack coordination also. Why should there not be coordination
between the fiscal and monetary authorities in Europe?
[James
Morgan]
...
Coordination at best unnecessary, at
worst harmful ... means of putting pressure on ECB at
around election times to accommodate over-expansionary
policies ... ECB has to target inflation ...
[Jordi Galí]
4. But
people say coordination makes things work better. Adjustment
becomes easier
[James
Morgan]
Exchange of information is good ... we
say central bank has duty to keep output at its potential
... fiscal authorities are responsible for demand, taxation and
redistribution ... and supply side policies ...
[Jordi Galí]
5. But
you have misgivings about the ECB and its two pillars approach
[James
Morgan]
...
Maastricht Treaty introduced monetary
aggregates as first pillar …this prominent role is
unnecessary ... ECB should adopt explicit inflation targets as
does bank of England ...
[Jordi Galí]
6. And
you’re not happy with the way the ECB presents its forecasts
[James
Morgan]
The forecasts have been downplayed…and the range of
uncertainty is not presented in a conventional manner ...
[Jordi Galí]
7. Has
the ECB suffered from what has been perceived to be the
weakness of the euro?
[James
Morgan]
...
Don’t think so ... ECB has adopted
right approach to euro ... benign neglect except insofar as it
impacts price level ...
[Jordi Galí]
8. But
on that point has not the ECB suffered problems because
inflation has been above target levels?
[James
Morgan]
...
Not a big problem ... HICP is affected by temporary problems
... it needs to look at core inflation ... one or two years
out as well ... unfortunately downplayed core inflation ...
other presentational errors too ... poor at explaining to
public what it has been doing ...
[Jordi Galí]
9. But
won’t the public be more confused by being confronted with
an index which strips out all the factors that have made
prices rise?
[James
Morgan]
At beginning of EMU core inflation was above the headline rate ...
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