Inflation differentials: Mario Draghi does not explain them, and the European Parliament does not ask him

In September 2014 Mario Draghi had one of his regular meetings with the European Parliament’s Committee on Economic and Monetary Affairs. He explained the European Central Bank’s (ECB) policy and answered questions. At the end of his introductory statement there was an interesting remark:

„Originally, you had also chosen ‘inflation differentials in the euro area’ as one of the topics of today’s hearing. I hope you will understand that, given the important decisions we took in July and September, I have focused my remarks on our monetary policy measures.“

While I would have wished to hear more about Mario Draghi’s view on the topic, apparently none of the committee members wanted to know. When discussing current economic policies with Mario Draghi after the introductory statement nobody mentioned inflation differentials.

This may partly be due to the fact that the committee had invited experts to discuss the matter before meeting the ECB’s president. Karl Whelan from University College Dublin, one of these experts, resorted to intra-EMU financial flows and current account balances to explain inflation differentials: „It was these imbalances – aggregate demand fuelled by cheap credit – that were responsible for the higher rates of inflation in countries such as Ireland and Spain“. [...]

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