If we are less preemptive, should we compensate by being more aggressively reactive to recent inflation? Or should we more fundamentally change the specification of the policy rule when confronted with these uncertainties? For example, would we minimize the damage from mis-estimates of the NAIRU and trend growth using a nominal income rule instead of a Taylor rule?
This implies that similar to banks’ lending to the private sector sovereign exposures will need to be backed by capital and also be part of a large exposures regime. A second measure concerns the design of the European Stability Mechanism’s (ESM’s) financial assistance programmes. The ESM is there to provide resources to countries that apply for an ESM financial assistance programme.