Russia's war against the people of Ukraine, the energy crisis, inflation and the necessary monetary policy response, the growth of trade barriers, the risk of recession, the state of labour markets and supply chains as well as the ongoing impact of the pandemic, have created a very uncertain economic path.
Monetary policy will, however, need to watch for signs of an upward creep in inflation that would be part of the transition that I have been discussing. It is important to recognize, however, that there are options between a preemptive response based on the relationship between the unemployment rate and the NAIRU and a totally reactive approach of responding only to higher inflation itself.