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Inflation, supply shocks and the case for a cautious and differentiated monetary policy response

Author

Listed:
  • Leonard, Clara
  • Braun, Ben
  • Klooster, Jens van 't
  • Monnet, Eric

Abstract

The Hormuz shock of February 2026 confronts the European Central Bank (ECB) with a familiar dilemma: inaction can risk entrenching inflation, while tightening risks deepening the slowdown and penalising renewable energy and cleantech investment. We argue that the ECB should be cautious and, if tightening proves necessary, ensure its operations shield renewable energy and cleantech sectors. Our analysis also reveals a growing gap between the ECB's communication on fossil fuel risks and its policy framework.

Suggested Citation

  • Leonard, Clara & Braun, Ben & Klooster, Jens van 't & Monnet, Eric, 2026. "Inflation, supply shocks and the case for a cautious and differentiated monetary policy response," LSE Research Online Documents on Economics 140409, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:140409
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    File URL: https://researchonline.lse.ac.uk/id/eprint/140409/
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    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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