Fabio Panetta: Everything everywhere all at once - responding to multiple global shocks

Speech by Mr Fabio Panetta, Member of the Executive Board of the European Central Bank, at a panel on "Global shocks, policy spillovers and geo-strategic risks: how to coordinate policies" at "The ECB and its Watchers XXIII" conference, Frankfurt am Main, 22 March 2023. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
24 March 2023

We are still going through a sequence of global shocks that are disrupting economies around the world. In just three years we have seen a pandemic, severe supply chain disruptions, a war, an energy crisis and now tensions in banking markets.

The resulting swings in activity and prices have presented policymakers with the challenge of identifying turning points in their underlying dynamics at a time of disruption in the economy and the financial sector. Inevitably, we need to navigate between the risk of underreacting – which could prolong the inflationary effects of these shocks – and that of overreacting, which could turn volatility into instability.

There are no simple solutions to these complex problems.

We need to adapt our policies to the overlapping effects of the shocks, to geopolitical developments, to the risk of financial amplification and to spillovers from other jurisdictions.

Three principles can help guide our monetary policy decisions in this context.

First, given the prevailing uncertainty and the ground we have already covered in tightening our policy, we must remain fully data-dependent and avoid pre-committing to any specific policy path. We should be guided by our reaction function, taking stock of inflation developments, underlying inflation dynamics and the strength of monetary policy transmission, also given the possible risks for the medium term outlook stemming from both the real economy and the financial sector. This way we can ensure that we calibrate our measures in the light of the incoming information.