Euro area productivity growth has been slowing since the turn of the millennium. Economic policy that bolsters stability in the economy is a vital factor for productivity growth.
How can we avoid a negative equilibrium of low growth and low inflation?
Slower-than-target inflation and a persistent decline in inflation expectations are key challenges for monetary policy. A negative equilibrium of prolonged low inflation and zero interest rates would fundamentally weaken monetary policy’s room for manoeuvre in balancing fluctuations in the economic cycle.