Tuesday, October 11, 2022

Are central banks in a prisoner's dilemma?

...A rate rise in one country may attract money from investors elsewhere, causing the currency to strengthen. This means a reduction in import costs, which may help to cool domestic inflation. But other economies then face higher import bills, which exacerbates their inflation problems. Uncoordinated policy tightening can become its own sort of currency war, in which each country works to shift the burden of inflation elsewhere, with the net result being too much tightening.

Source: The Economist 

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