Financial Dominance in the Pandemic and Post-Pandemic European Economy

Pierpaolo Benigno, Paolo Canofari, Giovanni Di Bartolomeo () and Marcello Messori

No 206, Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma

Abstract: Differently from past episodes, the European institutions responded to the pandemic shock with an appropriate policy mix. However, the expansionary convergence between monetary and fiscal policies is strengthening the role and the possible distortionary effects of financial dominance. Due to the consequent growing imbalances in financial markets, European institutions could deem it necessary to abandon the current policy approach and to re-attribute the function of the "only game in town" to monetary policy. However, in the post-pandemic context, the ECB could hardly act again as a last-resort player. Hence, it is convenient to pursue the policies that are compatible with sustainable post-pandemic development.

Keywords: Fiscal dominance; ECB; Monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E51 E58 (search for similar items in EconPapers)
Pages: 36
Date: 2021-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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