Editorial: Expansionary Monetary Policy and the Design of Debt Rules in the European Union
The Economists' Voice
The year 2022 started with the hope that a post-COVID 19 recovery would set in, helping to stabilize public finances and inflation. However, against the expectations of many market participants two major shocks occurred. First, the projections of major central banks that inflationary pressures would subside in 2022 were disappointed, as the post-pandemic inflation hike proved to be much more pronounced, broader, and more persistent than expected. Second and related, with the Russian invasion of
... Ukraine, in the course of the sanctions against Russia, the upward pressure on energy and food prices was further enforced. As global inflation further accelerated and the pressure on governments rose to soften price increases by (debt-financed) subsidies, the issue of sustainable public finance has become strongly intertwined with inflation. This is even more the case in the European Union, where debt rules aim to constrain public debt to shield of the European Central Bank from pressure to finance government expenditures. These most recent macroeconomic developments are reflected in the June 2022 issue of The Economists' Voice. The policy papers start with an analysis of the impact of the Covid-19 lockdown measures on inflation measurement in Israel. Jonathan Benchimol (Bank of Israel) Itamar Caspi (Bank of Israel) and Yuval Levin (Bank of Israel) show in their paper The Covid-19 Inflation Weighting in Israel: Back to the Normal? That significant shifts have occurred in the composition of the consumer spending due to the lockdown measures, which has complicated the interpretation of official inflation statistics. With the help of credit card spending data, the authors construct an alternative price index and show that the inflation bias remained comparatively small and transitory during this period.