This russian war, combined with the still troublesome aftermath of the pandemic, not only added pressures to price evolution in the short term, but also might have implications for long-term structural developments that drive neutral rate. Now is the time to discuss how the main findings of the ECB Strategy review were altered by this war.
Might these recent shocks change the decades-long trend of declining neutral rate? In my view, these shocks will most probably not fundamentally reverse this trend. There are some questionable aspects, however, regarding productivity, potential growth and how they change with globalization. Allow me to elaborate. Potential output growth has been significantly negatively impacted by the Global financial crisis and has not fully recovered since.