A powerful reaction to exterior shocks can stop medium-term rising cost of living expectations from de-anchoring, a brand-new paper from the European Central Bank shows.
The research study, published on July 29, creates a “regime-switching dynamic stochastic general balance version” in which extended durations of a central bank “checking out” an external shock cause de-anchored medium-term rising cost of living assumptions.
The writers, ECB financial experts Kai Christoffel and Mátyás Farkas, state that although looking through the
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