Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/315874 
Year of Publication: 
2024
Citation: 
[Journal:] Eurasian Economic Review [ISSN:] 2147-429X [Volume:] 14 [Issue:] 2 [Publisher:] Springer International Publishing [Place:] Cham [Year:] 2024 [Pages:] 235-254
Publisher: 
Springer International Publishing, Cham
Abstract: 
After the corona crisis, and even more so when the war in Ukraine struck, the price levels of all goods in the US and Europe rose surprisingly quickly and persistently. The FED began in March 2022 and the ECB in July 2022 with historically unique interest rate increases to combat the wage-price spiral that had not yet begun. In this article we show that energy, commodities and food were the main drivers of inflation. For this reason, central banks' goal of weakening demand for labor through historically large interest rate hikes seems unwise. We argue that the current measures cannot achieve all of their objectives: slowing inflation, stabilizing financial markets and sustaining growth. If interest rates remain high, but external forces emerge with a lasting effect and keep inflation rates high, especially in smaller emerging countries, it will be difficult to counteract this on a country or regional basis through high interest rate policy and national control of the price- and wage-Phillips curve. Significant negative side effects of interest rate hikes increase the risk of not making the necessary investments and, in particular, weaken the bargaining power of particularly vulnerable employment groups. Other tools are needed to curb inflation and keep it under control, for example more investment in sectors with supply disruptions and a massive expansion of investment in renewable energy.
Subjects: 
Interest rate hike
Inflation
Banking crisis
Labor market
Central banks
Energy crisis
Corona crisis
JEL: 
E00
E42
E43
E44
E50
E51
E52
G01
H00
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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