From the point of view of Bundesbank President Jens Weidmann, there is no need to loosen the accommodative monetary policy any further. In remarks delivered at the third cash symposium of the Deutsche Bundesbank, he noted that, instead, the forces of growth in the euro area needed to be strengthened and that the measures already introduced should be given time to unleash their impact.

Implementing a minimum exchange rate regime by buying foreign currency eases monetary conditions domestically and may thus have a direct impact on the inflation rate. However, such foreign currency purchases involve a risky expansion of the central bank’s balance sheet total. A new model can now predict what expansion of the balance sheet a central bank must expect if it wishes to implement a minimum exchange rate in the foreign exchange market.