With inflation reaching its highest levels since the euro was introduced, ECB officials have been wary of a wage-price spiral. Yet it’s profits, not wages, that are the real culprits in today’s inflation story.
Extreme weather events are growing in size, power and frequency, meaning our economies are increasingly disrupted. We show how this results in climateflation, which poses a dilemma to the ECB’s policymaking. In a world plagued by supply shocks induced by climate change, conventional monetary policy faces complicated trade-offs in terms of economic activity and prices, while at the same time proving incapable of tackling the source of inflation.
Extensive research shows that the past decade of low-rates monetary policy has significantly contributed to rising house prices, thus fuelling a self-propagating mechanism of wealth inequality and decreasing housing affordability. However, raising rates can also harm economic welfare. How can policymakers make a fairer housing market?
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