But even if the central bank does correctly identify the deceleration of growth, it might come under mounting pressure to adopt an excessively expansionary monetary stance in order to stimulate the economy and thus maintain the usual rates of expansion.
The longer the central bank tries to use monetary policy means to mask the structural slowdown in growth, the less credible it becomes in terms of its price stability objective. This can send inflation expectations higher and ultimately fuel inflation. However, a structural slowdown in the growth outlook is not the only problem that excessive public debt holds in store for monetary policy.