Simon Wren-Lewis is an economics Professor at Oxford University and a fellow of Merton College.
The interest rates remain close to the zero lower bound for the fifth year. What went wrong?
Simple. Fiscal policy moved from expansion to contraction in 2010. See, for example, the studies cited in this post.
How long does take for European politicians to accept the reality that the surge in monetary base doesn’t cause inflation, while the mass unemployment remains?
I have no idea I’m afraid.
The inflation fell to 1.1% in the euro area in September. It’s now almost half of the ECB’s target of 2%. Is disinflation an opportunity for the ECB to do more (LTRO3, rate cuts etc.) to boost the demand?
When inflation falls well below target, central banks can do one of two things (or both). They can use what unconventional policies they can find to raise inflation. They can also say that because they are uncertain about how effective these policies will be, fiscal policy should be expansionary. The US Fed is doing both, although perhaps they could do more with unconventional policy. The ECB is doing very little on unconventional policy, and in addition is advocating continuing fiscal contraction. This is very wrong.
Thank you very much.
The “official” cost of austerity, Graph: Prof. Simon Wren-Lewis
Simon Wren-Lewis is an economics Professor at Oxford University and a fellow of Merton College. He is writing on his blog mainly macro for both economists and non-economists.