Study by: Austrian Institute of Economic Research – Hertie School gGmbH – Queen Mary University of London – German Institute for Economic Research
Online since: 12.01.2023 0:00
The dispersion of inflation rates within the euro area tends to increase in times of very strong energy price increases. A
small part of this divergence is due to fiscal policy measures implemented by member countries and aimed at dampening the
energy price increase. The monetary policy response of an inflation-targeting central bank to adverse supply shocks depends
on the nature of the shock (demand or supply driven, temporary or permanent) and on the credibility of the central bank's
commitment to the inflation target.