In this issue of May 2: the nexus between price stability, financial stability and fiscal sustainability (part 2) by William De Vijlder, the economic indicators of uncertainty, the latest markets overview and the economic scenario.
Traditionally, monetary policy focuses on price stability and fiscal policy on other objectives. When inflation is well below (above) target on a sustained basis, this separation of roles implies that monetary policy may need to become extremely accommodative (restrictive). Consequently, interest rates have a large cyclical amplitude, which may have undesirable consequences for the economy and put financial stability at risk. Simulations show that a coordinated approach between monetary and fiscal policy reduces the optimal cumulative amount of rate cuts (hikes). However, putting this into practice would probably be very challenging.
Uncertainty over US economic policy, which is based on media coverage, rebounded in March. The European Commission’s economic uncertainty index declined in April thanks to the easing of uncertainty in the various business sectors.
GDP growth, inflation, interest and exchange rates
