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Fiscal support and monetary vigilance: Economic policy implications of the Russia-Ukraine war for the European Union

Author

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  • Olivier J Blanchard

    (Peterson Institute for International Economics)

  • Jean Pisani-Ferry

    (Peterson Institute for International Economics)

Abstract

The economic shock from the war in Ukraine is forcing Europe to face difficult policy choices, according to Olivier Blanchard and Jean Pisani-Ferry. Governments must decide how best to soften the blow of higher energy and food prices, and how much to rely on debt finance. The European Central Bank must decide how to balance the fight against inflation with the need to sustain aggregate demand, in the face of decreases in real income. The authors analyze the impact of the war on the European economy, discuss the pros and cons of policy options, and call for coherence in balancing sanctions, fiscal measures, and monetary policy. They argue for the use of transfers rather than across-the-board subsidies and point to the room for debt finance. They show the potential role of tripartite wage agreement and also argue that monetary policy can remain on its current trajectory but be ready to adjust.

Suggested Citation

  • Olivier J Blanchard & Jean Pisani-Ferry, 2022. "Fiscal support and monetary vigilance: Economic policy implications of the Russia-Ukraine war for the European Union," Policy Briefs PB22-5, Peterson Institute for International Economics.
    • Handle: RePEc:iie:pbrief:pb22-5
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    Cited by:

    1. Lucia Tajoli, 2022. "Too much of a good thing? Russia-EU international trade relations at times of war," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(4), pages 807-834, December.
    2. Pompeo Della Posta & Roberto Tamborini, 2022. "The Eurozone as an Inflation Target Zone," CESifo Working Paper Series 10014, CESifo.
    3. Pompeo Della Posta & Roberto Tamborini, 2022. "The Eurozone as an inflation target zone," DEM Working Papers 2022/7, Department of Economics and Management.
    4. Naima BENTOUIR, 2022. "The Russia-Ukraine invasion toward increasing food security threat for population: An empirical study using T-GARCH model," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(633), W), pages 173-184, Winter.

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