The extraordinary operations that are under way in most countries in response to the COVID-19 shock have raised fears that large-scale monetisation will result in a major inflation episode. This column argues that so far, there is no evidence that central banks have given up, or are preparing to give up, on their price stability mandate. While there are obviously some reasons to worry, central banks are doing the right thing and the authors see no reason to panic.
In response to the sanitary crisis, extraordinary operations are under way in most countries (Baldwin and Weder di Mauro 2020). Exceptionally large, often open-ended fiscal support programmes have been launched and they are being coupled with exceptionally large purchases of government bonds. In the UK, the Treasury and the Bank of England have just announced the temporary reactivation of a scheme that makes it possible for the central bank to finance public spending directly.
These developments have raised fears that large-scale monetisation will result in a major inflation episode. Yet, other commentators would like the central banks to do even more and embark on some form of ‘helicopter money’ (e.g. Galí 2020).
Loading ...