ECB's Constancio: A sharp dip in inflation would require a more substantial monpol stimulus

Key highlights from the speech by Vítor Constâncio, Vice-President of the ECB, at the Conference on “Understanding inflation: lessons from the past, lessons for the future?”, Frankfurt am Main, 21 and 22 September 2017:

• Understanding inflation dynamics is especially important today due to the surprisingly low inflation levels prevailing in many countries.
• Despite the ongoing recovery, headline inflation rates in several advanced economies remain well below target.
•  We now know that low inflation in the euro area had different origins: initially, it was mainly due to external factors (the fall in foreign demand, energy and food prices) while, after 2012, inflation was predominantly driven by domestic sources in an environment of weak demand.
• If inflation rises as a result of cost-push shocks unrelated to domestic slack, then it would be more costly, in terms of output loss, to bring inflation down.
• the flip side is that a sharp dip in inflation would require a more substantial monetary policy stimulus, which in turn could be problematic given the lower bound on nominal interest rates.