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Inflation risk?

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  • De Grauwe, Paul

Abstract

Inflation is on the rise again in the industrialised world. This has led to fears of a sustained surge in inflation. This article argues that while such fears may make sense in the US, they do not in the eurozone, where the monetary-fiscal policy mix has been much less expansionary than in the US. The fear expressed by some that the monetary overhang from the large injections of liquidity through quantitative easing might lead to inflation in the eurozone does not stand up to scrutiny either. The conclusion offers some observations on the monetary operating procedures in the ECB. It argues that in the future, when interest rates rise again, the ECB risks transferring all (and even more) of its profits to the banking system. This article proposes a way to avoid this unacceptable outcome.

Suggested Citation

  • De Grauwe, Paul, 2021. "Inflation risk?," LSE Research Online Documents on Economics 111810, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:111810
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    File URL: http://eprints.lse.ac.uk/111810/
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    References listed on IDEAS

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    1. Francesco Chiacchio & Grégory Claeys & Francesco Papadia, 2018. "Should we care about central bank profits?," Policy Contributions 27096, Bruegel.
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    More about this item

    JEL classification:

    • N0 - Economic History - - General
    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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