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Dancing on the edge of stagflation

Author

Listed:
  • Benigno Pierpaolo
  • Canofari Paolo
  • Di Bartolomeo Giovanni
  • Messori Marcello

Abstract

The ECB is facing a dangerous trade-off between the control of supply-led inflation and the need to avoid a further recession in the euro area. The paper argues that an effective ECB monetary strategy to handle this tradeoff would have been to anticipate the increase in the policy interest rates and postpone the end of the asset net purchase programs. The ECB should have followed this sequence, which is why its current monetary policy, bound in a tricky balance, risks favoring a euro-area stagflation and financial market fragmentation. Moreover, the new anti-fragmentation instrument (TPI) introduced by the ECB needs to be more effective and subject to excessive discretion. The ECB should instead activate a compelling combination of its rules-based monetary policy with EU centralized and national fiscal policies.

Suggested Citation

  • Benigno Pierpaolo & Canofari Paolo & Di Bartolomeo Giovanni & Messori Marcello, 2022. "Dancing on the edge of stagflation," wp.comunite 00155, Department of Communication, University of Teramo.
  • Handle: RePEc:ter:wpaper:00155
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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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