The last two decades have witnessed an enormous paradigm change on the role of central banks in monetary policy. What are the reasons behind this paradigm shift? A key insight was the expectation-augmented Phillips curve. It said that monetary authorities may have an incentive to trigger off a boom by relaxing monetary policy. However, you cannot surprise agents too often.
The origin of the current downturn can be traced back to two negative shocks that began roughly at the same time. The first has to do with the softening of external demand during the second half of 2012, and in particular, of manufacturing exports, which account for around 80 percent of the country’s total shipments abroad and fueled a considerable slowdown in manufacturing production.