This suggests that •  transitory negative productivity shocks will be associated with some degree of excess demand, pushing up inflation,  •  whereas permanent negative productivity shocks could be associated with either excess supply or excess demand, depending on the perceived decrease in wealth. Is what we are experiencing right now a negative shock to financial sector productivity?
And, if so, is it permanent? It is not easy to answer these questions because of the high level of uncertainty we face. Confidence in the private sector has been heavily affected, in particular after the collapse of Lehman Brothers, suggesting that the decrease in wealth perceived by agents around the world is very large.