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Artus – What should central banks do in the face of inflation?

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CHRONIC. From the United States to Japan, via Europe, an overview of the economic approaches used to deal with galloping inflation.

By Patrick Artus*

The Bank of Japan, pictured here on October 27, 2022, is not intervening to fight inflation.

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Leconomists are divided on the attitude that central banks should adopt vis-à-vis inflation. For some, not reacting to inflation, not switching to a more restrictive monetary policy, runs the risk that inflation will become permanent, and even uncontrollable.

For others, raising interest rates to correct inflation is very dangerous, with the risk of a loss of sustainability of public debts (loss of fiscal solvency), with the resulting need to switch to a restrictive fiscal policy while public spending needs are very high (to finance the energy transition, industrial relocations, increased spending on education, rising military spending, etc.).

Can inflation…


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