The European Central Bank has adopted a policy to keep inflation down by keeping interest rates low. But low interest rates tend to increase the supply of money by reducing saving and increasing borrowing, which is an inflationary pressure. What mechanism is at work here?
Overheard: "Two economists are talking, and one says to the other 'that works fine in practice, but how does it work in theory?'"
One contributor connected the currency policy of the United States as a key deflationary pressure for the Euro zone (presumably by increasing demand for dollars and diverting Euros out of the EU currency market). We explored the idea for a while.
The session ended with the observation that interest rates and inflationary policy were both set by the state of the economy, and it was agreed that the ECB has done a good job of constraining growth and also reducing downward economic pressure in the downturn.