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

Prospects for Euro Area Inflation in 2023

Question 3:  Under its current policy trajectory, with rates peaking at 3.5%, which of the following is most likely?

Answer:
ECB policy interest rates will be too low in 2023.
Confidence level:
Confident

Euro weakness in 2022

Question 2: Should the ECB respond to movements in the euro-dollar exchange rate of the nature observed in 2022?

Answer:
No
Confidence level:
Very confident
Comment:
The ECB should respond to inflation and the inflation outlook. Of course, inflation dynamics will be influenced by changes in exchange rates. For example, a lasting depreciation is putting upward pressure on inflation. Thus, indirectly exchange rate changes will feed back into policy.

Question 1: What was the main cause for the euro’s decline relative to the US dollar in 2022?

Answer:
Monetary policy differences
Confidence level:
Confident
Comment:
I would argue the main reason is the differential in interest rates. The ECB waited much longer than the Fed in raising rates. This is of course driven also by the perceptions regarding economic differences such as the stronger impact of the war and energy crisis on Europe.

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.

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