The second main implication is the possible impact on long-run potential output growth, and how that may influence the conduct of monetary policy. Implications for the short to medium term Let me first look at the channels through which increases in tariffs may affect output and inflation in the short to medium term.
For illustration, I will use the results of simulations carried out by ECB staff using both the ECB’s global model and the IMF’s multi-country model. As with all models, the uncertainties involved mean precise estimates from these scenarios should be treated with caution, but they are useful to explain the different channels at work.