I have written a policy brief devoted to the analysis of the causes of inflation and the tools to deal with it, drawing on the discussion at the seminar that FEPS organised in cooperation with LSE and FES in May 2023.
The surge of inflation in 2021-22 has become a major test for macroeconomic policies. The policy response has not always been adequate. This is partially due to an insufficient understanding of the causes of inflation but also rigidities on the part of policymakers, who have stuck to the usual tools of demand management to treat the recent inflation shock, even though it was triggered by supply-side factors.
This experience points to the need to revise the ways we are dealing with inflation. In this paper I outline two sets of proposals: one is about the techniques of monetary policy itself, including data and modelling issues. The second set is about policy mix and coordination in dealing with inflation, bringing fiscal and other policies on board.
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