Volker Wieland's picture
Affiliation: 
Goethe University Frankfurt and IMFS
Credentials: 
Professor of Monetary Economics
Member of German Council of Economic Experts
Managing Director, Institute for Monetary and Financial Stability

Voting history

Effects of an embargo on Russian gas

Question 2: By how much would an immediate EU-wide import ban on Russian gas reduce German GDP growth per annum in 2022-3, in percentage points (pp), if the government offset the costs with a well-targeted fiscal policy?

Answer:
Between 5pp and 10pp
Confidence level:
Confident
Comment:
Again I think a reduction of 3 to 6% will not be avoidable. Demand side policies cannot fix this. It's not a liquidity problem that needs to be maanged with loans from the ECB or the government. A major long-term re-organisation of industrial production is necessary and some companies will drop out and gas dependent sectors decline. This takes time. The main policy need is to use all alternative ways for energy supply (nuclear, fracking, lignite coal, LNG imports). If that is really done quickly Germany might get through an embargo or cessation of deliveries by Russia with a smaller recessionary effect. Large increases in debt monetized by the ECB would simply further raise inflation on top of the cost-push shock. This is quite different from the corona shock, which was disinflationary.

Question 1: By how much would an immediate EU-wide import ban on Russian gas reduce German GDP growth per annum in 2022-3, in percentage points (pp), absent other policies?

Answer:
Between 5pp and 10pp
Confidence level:
Confident
Comment:
I would expect a reduction of 3 to 6 percent with upside risk. This comes at a time when German GDP is already roughly 2 percent below GDP of 2019 pre-corona crisis (Q2, Q1 1%). At the same time inflation has been rising a lot, and an embargo could push inflation near two-digit levels. Gas is pipeline dependent and alternative options (fracking, nuclear energy, lignite coal) are limited. As long as the political decision makers are not willing to use all possible meausures to reduce dependence on Russian energy imports, the effect of an embargo or a delivery stop on the side of Russia is likely to have substantial effects and cause a recession that may well compare to the one after the financial crisis.

Question 3: By how much would an immediate EU-wide import ban on Russian gas reduce EU GDP growth per annum in 2022-3, in percentage points (pp), absent other policies?

Answer:
Between 3pp and 5pp
Confidence level:
Confident
Comment:
Most likely the effects will be much smaller for other countries such as France which relies on nuclear energy. Italy may well be similarly affected as Germany.

ECB Monetary Policy and Catch-up Inflation

Question 2: Which of the following policies is the most desirable to meet the ECBs objective to achieve its mandate of “price stability” as you understand this term.

Answer:
Inflation targeting
Confidence level:
Not confident
Comment:
Inflation targeting has its own problems. While symmetric price level targeting is better based on model evaluations I am still sceptical it can be implemented effectively. I am sceptical of asymmetric policies. They can make up for a downward bias in inflation due to the lower bound on nominal interest rates. A good way to implement a make-up strategy is to use a Taylor rule with make-up factor in communication. The Fed publishes such a rule in its policy report regularly. This can help to avoid a downward bias if it is given weight in public communication, because it relates directly to the policy instrument. At the same time, defining this more loosely at the level of target variables such as inflation rates or a price-level target path makes it quite a bit more dificult in my view. I remain sceptical there.

Question 1: To what extent do you agree with the following statement? “The European Central Bank should systematically allow for inflation to exceed its target to compensate for periods of below target inflation.”

Answer:
Disagree
Confidence level:
Very confident
Comment:
Make-up strategies including price-level targeting perform well in model-based evaluations under rational expectations and full credibility. The ECB has leeway to allow over- and undershoots of inflation. To promise credibly to provide a make-up for past inflation below target is difficult, however, and subject to lack of credibility and uncertainty. Furthermore a symmetric price level targeting that makes up for past overshoots as well as undershoots of inflation is quite a challenge to deliver. It would make it necessary to purposely tighten policy to keep inflation below the target rate of 2% to reach the price level target path consistent with a 2% trend. A purely asymmetric policy catch-up policy could overdo it and induce an upward bias.

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