🧵 A string of shocks has created uncertainty for economies around the world, says Executive Board member Fabio Panetta.
The effects of some of these shocks are starting to unwind, but it may take some time for volatility to subside.
https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230322_2~af38beedf3.en.html
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Panetta: We need to navigate between the risks of underreacting, which could prolong the inflationary effects of these shocks, and overreacting, which could turn volatility into instability
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Panetta: In this context, we need to continuously assess the combined effect of our different policy instruments, the risks of non-linear effects and the spillovers from policies adopted elsewhere
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Panetta: This means our monetary policy should be data-dependent and adaptable.
Moreover, it requires us to communicate our reaction function clearly and consistently
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Panetta: In some industries, profits have increased strongly. If opportunistic behaviour by firms delays the fall in inflation, it would trigger a monetary policy reaction.
Other authorities should also intervene to prevent abuse of market power
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