Paul De Grauwe (@pdegrauwe.bsky.social)

The high price of the fight against inflation: The case of the euro area The fight against inflation has largely been won in the euro area, after a sharp but short-lived inflation episode over 2021-2023. This column argues that energy prices can explain the dynamics of inflation over the recent period better than the interest rate policy of the ECB. At the same time, higher interest rates led to significant losses incurred by central banks as they had to make interest transfers to banks holding reserves. A tiered system for remuneration of bank reserves would have allowed for a significant reduction in interest transfers to the banks, while keeping the central bank’s operating procedure unchanged. https://cepr.org/voxeu/columns/high-price-fight-against-inflation-case-euro-area