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By Guy ERTZ, Chief Investment Advisor, BGL BNP Paribas
Central Banks are facing a dilemma between economic growth and inflation. The purpose is to generate economic growth and a highest possible employment rate while maintaining the stability of prices and thus of purchasing power. The assumption being that the stability of inflation is the key to allow stable growth over time.
There is a dilemma because if economic growth exceeds a given threshold, price stability will be compromised through an increase in wages and input prices. The economic growth, which is compatible with prices stability, is known as the “potential” economic growth. The key instrument of the central bank is the interest rate. Indeed, if economic activity and inflation is...
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