Explaining the Post-pandemic Inflation Dynamics: Back to Wicksell?

Nicolas Barbaroux ()
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Nicolas Barbaroux: Banque de France

A chapter in Waving the Swedish Flag in Economics, 2025, pp 149-160 from Springer

Abstract: Abstract In the aftermath of the 2020 pandemics, monetary policy has been tightened owing to the unpreceeding return of inflation in many advanced economies. In this quest for stability, a renew of interest emerged concerning the concept of natural rate of interest in the footsteps of Knut Wicksell’s works. Setting nominal short-term rates to target a low inflation rate under a policy rule has always been presented as the three building blocks of a Wicksellian monetary policy fashion (Lavoie and Seccareccia, 2004; Clinton, 2006). However, the Wicksellian label was more motivated by the monetary policy rule making and the effectiveness of short-term rates to fight price level instability, rather than paying attention to the natural rate of interest as a policy guide for tracking inflation (deflation). It seems that the situation has changed following the pandemics. The return of inflation in 2020, mostly due to chain-value gluts and supply shocks at large, pushed academics and policymakers to examine new framework and key concepts for understanding inflation dynamics. In this veil, a renew of interest emerged for the natural rate of interest as the Bank for International Settlement (BIS) did quite recently. It is, thus, a good opportunity to come back, or to discover, the leading contributions made by Wicksell as Professor Trautwein contributed in many ways to do all along his career.

Keywords: Natural interest rates; Wicksell-inflation; Monetary policy; Expectations; Monetary equilibrium; B 13; E 43; E 47; E 52 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/978-3-031-71511-2_8

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