4 This may be related to the authors’ second conjecture on why initially high levels of inflation are associated with lower sacrifice ratios—namely, that high inflation is associated with large global supply shocks (Cecchetti and others, 2023, p. 18). It is analytically distinct, however, in that they do not emphasize the timely monetary policy response to those shocks.
That is, enforcement should be strong enough to be a deterrent against future failures, and be publicised so that it acts as such a deterrent. Supervision must be underpinned by a credible threat of enforcement. Coupled together, the ECB’s sanctioning role and the Central Bank’s existing role will cover the whole rulebook.