Monetary Policy and Stagflation: A trade-off between price stability and economic growth?

Authors

Leef H. Dierks, Luebeck University of Applied SciencesFollow

JEL Code

E31, E52, E58, E65, E71

Abstract

Several euro area economies are likely to experience a stagflation in 2023. This situation is characterized by a combination of economic stagnation, i.e., GDP growth falling below its potential growth rate, and a pronounced increase in inflation as was last observed during the 1970s’ oil crisis. A stagflation presents the European Central Bank with a dilemma. Should it further tighten its monetary policy in an attempt to align euro area inflation (expectations) with its target of two per cent p.a. in the medium term? Or should the ECB re-adopt a more accommodative stance so as to stimulate economic growth in the monetary union?

Recommended Citation

Dierks, Leef H. (2023) "Monetary Policy and Stagflation: A trade-off between price stability and economic growth?," Journal of New Finance: Vol. 2: No. 3, Article 2.
DOI: 10.46671/2521-2486.1031
Available at: https://jnf.ufm.edu/journal/vol2/iss3/2

Submission Date

11-14-2022

Approval Date

4-10-2023

Publication Date

7-14-2023