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Thinking Beyond the Pandemic: Monetary Policy Challenges in the Medium- to Long-Term

The economic characteristics of the COVID-19 crisis differ from those of previous crises. It is a combination of demand- and supply-side constraints which led to the formation of a monetary overhang that will be unfrozen once the pandemic ends. Monetary policy must take this effect into consideration, along with other pro-inflationary factors, in the post-pandemic era. It must also think in advance about how to avoid a policy trap coming from fiscal dominance.

This paper was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 18 March 2021.

The paper was prepared within the framework service contract which is intended to support the work of ECON in the European Parliament by enabling it to seek independent expert advice in the field of monetary and economic affairs to support its scrutiny activity, in particular in the context of the Monetary Dialogues between ECON with the European Central Bank (ECB). Expertise is requested on a wide range of issues relevant to the work of ECON in relation to EU economic and monetary integration, including governance and institutional aspects, as appropriate.

 

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