The public’s expectations about future monetary policy actions matter today because those expectations have important effects on current financial conditions, which in turn affect output, employment, and inflation over time.
At the same time, existing competitiveness problems, as well as domestic and external imbalances, need to be urgently addressed by the countries concerned. To that end, wage-bargaining institutions that allow wages to adjust appropriately to losses in competitiveness and the unemployment situation are indispensable. Likewise, measures that increase price flexibility and non-price competitiveness are essential.