Olli Rehn, 15 October 2019

It has been recently suggested by a group of seasoned central bankers that there has been no danger of a deflationary spiral in the euro area. This column argues instead that the threat of a deflationary spiral was avoided by several reinforcements of the degree of monetary policy accommodation since 2015, and that a key lesson of monetary policy of the last ten years is that timely action is essential to avoid the sort of profoundly harmful equilibrium that might arise from prolonged low inflation and zero interest rates.

Carlos Garriga, Finn Kydland, Roman Šustek, 16 October 2016

Central banks responded to the financial crisis by cutting policy rates to prevent deflation and curb the decline in economic activity, but these responses have been anything but temporary. This column explores whether the sticky price channel is still relevant in an environment of persistently low rates. Although the effectiveness of the sticky price channel is limited, monetary policy instead transmits through mortgage debt. The recent period of low rates and low inflation has redistributed income and consumption from savers to mortgage borrowers.

Stefano Neri, Stefano Siviero, 15 August 2015

EZ inflation has been falling steadily since early 2013, turning negative in late 2014. This column surveys a host of recent research from Banca d’Italia that examined the drivers of this fall, its macroeconomic effects, and ECB responses. Aggregate demand and oil prices played key roles in the drop, which has consistently ‘surprised’ market-based expectations. Towards the end of 2014 the risk of the ECB de-anchoring inflation expectations from the definition of price stability became material.

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