The first reason is that there was not one shock but there was a series of shock. We had to find they make Caroline Hyde into a
positive fiscal policy shock and then we had the war. First I think when it comes to when they begin fiscal policy. As you
know this was an absolutely extraordinary time. And governments reacted quickly like central banks and in
countries where they are. There is a tradition of automatic stabilizers and of reaching out to people with job retention
schemes for example. I think the fiscal policy was quite well calibrated to what was needed in the countries where there is
much less automatic stabiliser and a much wider use by necessity of discretionary fiscal policy than it has been much more
difficult to calibrate the support. So that obviously we can only say with the benefit of hindsight.
But when you compare the US with Europe for example you see that in 2021 income in the US on aggregate was higher than what a
trend from 2019 would have suggested. And that was different in Europe where it was just back to where it was in 2019. And
therefore the demand for goods in the US was much higher than what it was for example in Europe. So we had a strong push for
demand where we as it was it took more time to reopen the meat on the supply side. Also because of the difficulties that we
know in China leading to a bottleneck in the supply chain. So there was huge demand much less much less supply capacity
immediately available and huge demand for goods much more than before. So you have this imbalance between the minute supply and
that creates inflation. So so put pressure on energy prices. And so that's one thing. And then came the war. And obviously the
war is more it's taking place geographically in Europe. But as you very well know oil and food prices are global. And this war
is reaching pressure on oil on energy prices on oil prices globally and also on food prices. And that is adding another
layer to the already rising inflation. So that is very much the NIKKEI agendas shock which is difficult to address a central
bank. But I think in that chain. These are the two main causes. So if if we draw some lessons from this one is that to be able
to better calibrate fully she's in an extraordinary time like the. But also perhaps in less extraordinary recession than
automatic stabilizers can play a big role. So that's the first thing. And on the second one and we might want to discuss that
later. Is the huge dependency that the world has on fossil fuel obviously makes it very vulnerable to a price rise and a price
volatility.
So it is a simple thing to say about this. The first one is I know a lot of people have tried to do some and some line between
what happened between the 70s and what's happening today. But there are two main differences between 3x freely between then
and now. One is obviously the developed where the advanced economies are less dependent on the energy for the same amount
of prediction than what they were before. The second is we have independent central bank and you know where. Yes the Fed had way
to about more than six years with inflation of a 5 percent to react. Back then today the reaction has been much more rapid. So
we've learned from this. And the third point which I think is is very important and
perhaps the most truthful is if we if this crisis helps us to move away faster in terms of fossil fuel dependency than what we
had seen before then the word should become less sensitive to an energy price volatility. Now is that what we see at this stage.
There's been a lot of commitment. But in spite of you know a lot of activism about climate and the need to move away from fossil
fuel I think it's fair to say that in practice there has been some progress. And if we don't increase massively investments in
cleaner energy and low emission energy we run the risk of being subject to geopolitical movement and weather and other exogenous
shocks that would put pressure on energy prices and would make them more volatile.
Well actually this this with precisely on cue for the U.S. to do more to enforce automatic stabilisers because they have the
advantage that they don't require legislative approach on each use. Right. Another advantage is that by construction they are
temporary and they and they do not that fake Justin Trudeau holds fiscal policy stance. So that's reducing the chances of
enforcing people's fiscal policy as well as the gridlock that you were describing. Obviously it may seem to be the case that
discretionary fiscal action could still be needed. For example if the automatic stabilisers are large enough on that be
effective or if the shock is very large and that's we know the US we look but musically luck can deliver on this. So I think
from that standpoint it's there's a very clear role for fiscal policy.
It's also you know if we look back at some economic theory there is quite a large body of evidence
which suggests that multipliers of government spending are significantly larger when we are a visible lower bound. I think
on average communities the big expenditure multipliers ISE to make it to be 1 4 5 0 0 0 a bulb in such an environment. So
that's a strong argument for using them because ultimately they want to add to the expenditure to GDP ratio. And that would
improve fiscal sustainability. So for all these reasons and perhaps just the last one which is you know there's been much
talk about saving flex ISE one reason for having no neutral right. You have saving glut coming from emerging markets. Wanted
to raise their reserves. We have saving. Let's coming from aging obviously where more people for longer would want to save. And
we have also some saving coming from inequality with wealthier people accumulating more assets. And here again fiscal voice you
can play a role to have reduced a bit and the pressure coming from state savings glut.
That too the differences between the attack and fiscal policy which I think is.
Is key to understand and to try and sell your question. Central bankers are not democratically elected. Unlike fiscal
policy makers and therefore the look at TV role is usually of policy the other party for a fully she is usually more within
the remit of fiscal boy she than many Thai police. Now having said that we would be blind to ignore that type
voice. You can also house and then CAC you consequence if not dialects. And for example
by lowering interest rates and the fest itself by doing QE facets prices are increasing of states increasing the wealth of
people who already have savings. But conversely the best Maria Tadeo she's also raising not Tom Keene Xi Jinping was that
employment which is the best way of tackling inequality. So what I'm trying to say here is I don't think it should be a direct
focus of money time we see because because central bankers are not Alix Steel that independence and they have a mandate which
is inflation unemployment in the US inflation primarily in Europe but they do have some unintended consequences to which
they can pay attention including when we were discussing running the. For the record to increase employment label on the climate
side. I think where the role of the central bank primary is is ensuring that there is no.
As of the last possible risk of financial instability coming from trying to DAX it because of climate policy decision. And
that is why we are arguing for giving the private sector together with the with the big sector agencies long term view
when it comes to climate. So that investment decision can be made in a smooth and regulated way.
So you want to tell people basically in a concrete way you want to tell them you'll have 10 20 or 50 years to actually switch in
energy whether it's for transport heating or theirs so that they can be a orderly shift in the private sector's investment and in
the way the private sector functions. And in that respect yes I think central banks have a role to play.