20 Questions
What is the main focus of the section?
Causes of inflation
What has been the trend in Euro Area's inflation rate from September 2023 to October?
Increased from 4.3% to 2.9% p.a.
What has been the trend in core inflation in the Euro Area from September 2023 to October?
Decreased from 4.2% to 3.6% p.a.
What has been the trend in the key policy rate set by ECB from July 2022 to the present?
Ten successive hikes
What is the current bank lending rate (on main refinancing operations) set by the ECB?
4.5% p.a.
According to the given text, how is inflation defined by Bryan (2006)?
The amount of money in circulation relative to the amount actually needed for trade
What is challenging about disentangling relative price changes from nominal ones, as mentioned in the text?
It requires a statistical or formal model
What factor did Geyer (2023) indicate explains up to 70% of measured inflation in Austria since early 2021?
Imported gas and oil-price shocks
What does Borio, Hofmann, Zakrajšek (2023) show about the inclusion of growth of broad money aggregates in professionals’ inflation forecast?
It would have significantly improved professionals’ inflation forecast
What was already at 6% p.a. prior to Feb. 24, 2022, as per the given text?
HICP-based inflation
According to the given text, what does Bryan (2006) define inflation as?
A rise in all nominal prices, not just a subset, due to monetary phenomenon
What is a criticism of Geyer (2023)'s explanation for up to 70% of measured inflation in Austria since early 2021?
It takes the I-O structure as given and ignores expectations and substitution in reaction to relative price changes
According to Borio, Hofmann, Zakrajšek (2023), what would have significantly improved professionals' inflation forecast?
Including growth of broad money aggregates
What does Mervyn King's statement 'No money, no inflation' imply?
Inflation is solely dependent on the amount of money in circulation
What is challenging about disentangling relative price changes from nominal ones?
It is difficult to separate relative price changes from nominal ones without considering expectations and substitution
What is the primary focus of the section on inflation and the Phillips curve?
Examining the causes of inflation, including cost shocks, domestic pass-through, and monetary policy
What explains the currently high level of inflation in the Euro Area according to the given text?
Endogenous monetary policy
What is the trend in core inflation in the Euro Area from September 2023 to October?
Decreased from 4.2% to 3.6% p.a.
What has been the trend in the key policy rate set by ECB from July 2022 to the present?
Increased steadily
What is the implication for ECB's monetary policy if structural changes in goods and labor markets contribute to inflation?
The ECB may need to revise its inflation targeting framework
Study Notes
Euro Area Inflation and Monetary Policy
- From September 2023 to October, the Euro Area's inflation rate has been trending downwards.
- Core inflation in the Euro Area has also been trending downwards from September 2023 to October.
- The key policy rate set by the European Central Bank (ECB) has been increasing from July 2022 to the present.
- The current bank lending rate (on main refinancing operations) set by the ECB is 6% p.a.
Inflation Definition and Measurement
- According to Bryan (2006), inflation is defined as a sustained increase in the general price level of goods and services in an economy over a period of time.
- Disentangling relative price changes from nominal ones is challenging due to the complexity of distinguishing between changes in prices and changes in the economy.
Factors Influencing Inflation
- Geyer (2023) indicates that the lockdowns and supply chain disruptions explain up to 70% of measured inflation in Austria since early 2021.
- A criticism of Geyer's explanation is that it may not fully capture the complexity of inflation dynamics.
Monetary Policy and Inflation Forecast
- Borio, Hofmann, and Zakrajšek (2023) show that including the growth of broad money aggregates in professionals' inflation forecast would have significantly improved their predictions.
- Mervyn King's statement 'No money, no inflation' implies that the money supply is a key driver of inflation.
Inflation and the Phillips Curve
- The primary focus of the section on inflation and the Phillips curve is the relationship between inflation, unemployment, and monetary policy.
- The implication for ECB's monetary policy if structural changes in goods and labor markets contribute to inflation is that the ECB may need to adjust its policy to address these underlying factors.
Learn about the causes of inflation, the difference between rising relative prices and inflation, and the relationship between inflation, goods, and labor markets. Explore the stability of the Phillips curve in the Euro Area.
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