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Odd Lots · May 11, 2026 · 52m
The Bank of England's Megan Greene on Monetary Policy in a World of Supply Shocks
Megan Greene, external member of the Bank of England's Monetary Policy Committee, discusses the central bank dilemma post-Covid: traditional monetary tools are designed to manage demand, but successive supply shocks (Ukraine war, Iran tensions, supply chain disruptions, Brexit) have made demand management increasingly ineffective. She explains how compounding shocks make it harder to dismiss disruptions as 'transitory' and explores the tension between underlying economic weakness and inflation risks.
This summary was generated from show notes and public descriptions, not from a full transcript review. Details may contain inaccuracies.
Curious
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Compounding Shocks Create a New Macroeconomic Environment
Greene frames the post-2020 economy not as a return to normal after temporary disruptions, but as a structural shift: multiple simultaneous challenges (geopolitics, energy, trade fragmentation, deglobalization) represent a permanent change in the risk environment central banks must navigate.Highlights
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Monetary Policy Tools Are Demand-Side Instruments in a Supply-Shock World
Central banks possess tools designed to modulate demand (interest rates, quantitative easing), but post-Covid disruptions—supply chain breakdowns, geopolitical conflicts, energy shocks—require supply-side solutions that monetary policy cannot address.•
First-Order vs. Second-Order Effects: Why Inflation Still Matters Despite Weak Growth
Greene distinguishes between immediate supply shocks (first-order: energy prices spike) and secondary effects (second-order: workers demand higher wages, firms raise prices preemptively). Even with weak underlying demand, second-order effects can lock in persistent inflation if not controlled early.•
Central Banks Face an Impossible Trade-off: Control Inflation or Prevent Recession
With supply shocks pushing inflation up and underlying economic weakness (particularly in the UK post-Brexit) pushing growth down, central banks cannot simultaneously achieve both price stability and full employment. They must choose which mandate takes priority.Editorial
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The 'Transitory' Language Becomes Untenable With Repeated Shocks
Central banks initially dismissed supply-side inflation as temporary, but successive shocks make that language incredible—each new disruption (Ukraine invasion, new trade wars, Middle East tensions) resets expectations of when 'normal' returns.Misc
✧The 'transitory' narrative became harder to sustain with each successive shock to the supply side
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