The author is the head of the Western European Economic Department of JPMorgan Chase

In the past decade, inflation in the Eurozone has been consistently lower than the European Central Bank’s target.

In other words, output and employment are below the levels required to achieve the European Central Bank’s custom price stability indicators. These losses are significant in themselves, even if they will not continue in the future.

But they also left a wider budget deficit, a higher debt stock, and lower inflation expectations than if they achieved price stability targets. This legacy makes the loss of future output relative to economic potential more likely.

In almost all periods when inflation is lower than expected, the European Central Bank has formulated monetary policy, and its own forecasts show that inflation will not reach its target in the usual two to three years.One might have anticipated the ECB’s recent Strategic review Understand why this happened and how the policy should develop in response. There are few signs that it has done so.

In its defense, the European Central Bank can claim that it has innovated in the design and magnitude of its policy response to low inflation. After the global financial crisis, it had to deal with prematurely tightening fiscal policies. The European Central Bank must also play a role in mediating the response of politicians to the slow sovereign financing crisis.

The European Central Bank lends to banks on a large scale, sets negative interest rates, and purchases trillions of assets. It quickly responded to the epidemic.Not only are these policies still in operation, but the European Central Bank committed to To continue the action in the future. The European Central Bank believes that it has more room to deploy these and other tools as needed.

But if the European Central Bank has the policy tools to bring inflation back to its target, why not deploy them? It can be said that as the policy becomes more and more non-traditional, its impact becomes more and more uncertain. The policy changes required to bring inflation (or at least the European Central Bank’s projections) back to target will also lead to increased uncertainty in forecasts.

For example, as asset purchases expand, the possibility of financial instability may increase. Alternatively, the European Central Bank may worry that increasing purchases of sovereign debt may create improper or destabilizing incentives for fiscal policymakers.

Although it is reasonable to make such an argument, if it is an explanation for its tolerance of low inflation, it is for the European Central Bank to make it. In making these arguments, the European Central Bank will emphasize the role that other policies and policymakers can play in them.

For example, if there is concern about financial instability, the European Central Bank should make it clear that macroprudential and other regulatory interventions will become more important. If fiscal incentives are the problem, the European Central Bank needs to emphasize this point.

Instead of participating in these debates, the European Central Bank chose to confuse what its policies are designed to achieve. Recently, an intermediate goal of maintaining “favorable financing conditions” has been introduced. But (by design) no convincing quantitative definition of this goal is provided. There is also no system to explain why this intermediate goal is the correct way to achieve price stability.

The strategic review has clarified that the European Central Bank attaches equal importance to inflation deviations above and below the 2% target. After a period of time when the policy was effectively restricted by lower interest rates, it also introduced the concept of greater tolerance for inflation overshoot.

However, the impact of these ideas on the credibility of establishing inflation targets is weakened by the European Central Bank’s failure to explain why it can now tolerate lower-than-expected inflation.

Just look at the recent experience of the Bank of Japan, and you will find that large-scale and sustained monetary policy actions, not to mention tolerance of inflationary overshoot (albeit unpopular), are not sufficient conditions for its occurrence.

The Fed has Shift Its system ensures that its more limited inflation deficit will be compensated over time. The President of the European Central Bank, Christine Lagarde, stated that the strategic review provides a “European” implementation of the same idea. However, there is a big difference between the statement that it will actively seek inflation above the target and just tolerate it as a risk after a period of time below the target. This difference is now reflected in the behavior of wage and price makers.

Greg Fuzesi of JPMorgan Chase contributed to this article