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Aggregate Wage Flexibility in Selected New EU Member States 21

Last but not least, if the central bank sets its inflation target at too low a level, there might be not
enough room for real wage adjustments. This point is reflected in ECB (2003), according to which
the price stability criterion is interpreted as keeping the inflation rate close to two percent. This is
different from the original interpretation of price stability as inflation between zero and two
percent. When the ability of wages to adjust is limited, the productivity channel may be viewed as
an alternative shock absorber. In particular, if productivity grows faster than real wages, this
creates some margin for coping with shocks.

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