As in the 1970s, a severe economic shock has forced governments to pursue massive fiscal and monetary expansion, thereby sowing fears of future inflation. But not all shocks are the same, and the key question now is whether we can be confident that the current state of exception will end.
PRINCETON/PARIS – The specter of inflation has returned. For two decades, central banks across industrialized economies were confident that they had banished it for good. Then came the 2008 financial crisis, which occasioned a brief return of inflation anxiety on both sides of the Atlantic. In the United States, congressional Republicans ushered in austerity in 2010, and the European Central Bank started tightening its interest-rate policy in 2011. But then policymakers started to worry that inflation was too low, and that it might be impossible to reignite.
PRINCETON/PARIS – The specter of inflation has returned. For two decades, central banks across industrialized economies were confident that they had banished it for good. Then came the 2008 financial crisis, which occasioned a brief return of inflation anxiety on both sides of the Atlantic. In the United States, congressional Republicans ushered in austerity in 2010, and the European Central Bank started tightening its interest-rate policy in 2011. But then policymakers started to worry that inflation was too low, and that it might be impossible to reignite.