Since the start of the APP in March 2015, ten-year US Treasuries have been yielding, on average, around 170 basis points more than ten-year Bunds – an enormous difference that, to a large extent, reflects the divergence in monetary policy cycles that emerged in the wake of the euro area’s sovereign debt crisis.
Let me borrow a term coined by Cecchetti, who calls this the “accounting” theory of inflation. The problem arise because prices affected by trade are “relative” prices. The import of a foreign product that is cheaper than the domestic one produces a change between this price and the other prices in the economy, while inflation is actually the aggregate change in general nominal prices.