CEPII, Recherche et Expertise sur l'economie mondiale
Central Bank Monetary Policy Strategies amid Turmoil in the World Economy

Michel Aglietta
Sabrina Khanniche

This policy brief addresses the challenges that confronted the main central banks in the face of uncertainties arising from multiple disruptions: the waves of the Covid-19 pandemic since early 2020 to the energy crisis of 2022, to the disastrous events generated by climate change, the war in Ukraine and the real-estate crisis in China. Inflation has surged due to supply-side problems and fiscal policies fostered by socio-political rivalries both within and between countries. In this environment, the task of central banks to fight high and persistent inflation, while limiting the risk of severe or prolonged recession, is extremely difficult, and particularly so when their lack of cooperation can lead them to overbid one another in raising their policy rate. To understand better how central banks are responding to inflation surges and financial vulnerabilities, we start from reviews of monetary policy frameworks by the Fed and ECB to highlight why they have been induced to abandon their forward guidance in favor of day-to-day responses to the flow of new events. Since early 2022, the main challenge forcing central banks from easing to restrictive monetary policy has been the surge in inflation triggered by the rise in energy and food prices related to the war in Ukraine in a context of deep uncertainty. However, specific national issues remain key to central bank policies.

 Data :   pb2022-39.xlsx

 Mots-clés : Surging inflation | Financial vulnerabilities | Yield curve inversion

 JEL : E58, E62, F31
CEPII Policy Brief
N°2022-39,  2022

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