The stimulative measures of the ECB are counterproductive

The American central bank (Fed) is planning to reduce interest rates with 25 base points to counter the weakening of the economic growth in the US. President of the ECB, Mario Draghi has announced that he also wants to reduce interest rates and wants to introduce other monetary measures in order to stimulate inflation. This announcement was heavily criticised by ING Group CEO Ralph: 'People are worried about their financial futures and save more while interest rates are low. So, reducing interest rates will not ensure that more money will flow into the real economy.'

According to Professor Casper de Vries, holder of the Witteveen Chair of Monetary Economics at Erasmus School of Economics. inflation is not that important. What is important is how the real economy is performing and right now, it is rumbling on. Central banks like the Fed and the ECB work with cyclical models which prescribe how you should react on cyclical movements within the business cycle, says Professor De Vries. However, these models do not take structural aspects into account. Nevertheless, they should, because the structure of our economy has changed. Because of Chinese imports, prices are low and will stay low for the next 10-20 years because of competition. The central bank can thus not create any inflation there. Thus, the central bank should start looking at the structural aspects of our economy, instead of cyclical movements. Moreover, they should focus more on the long-term.