and the recent disinflation. in both cases energy prices contributed initially to inflation. crucially, the consensus about the optimal monetary policy response to inflation was largely shaped by the 1980s ’ us experience and the subsequent large academic literature iii. the end of the great inflation from 1980 to 1985 proved that monetary policy was a potent instrument to achieve price stability, but to be credible had to risk high unemployment. as a consequence, the post - volcker consensus was that central banks ( i ) should react swiftly and strongly to inflation, as in the celebrated taylor principle that the interest rate should respond by more than one - for - one to inflation to prevent uncontrollable inflation path, ( ii ) would need to actively increase unemployment to disinflate the economy, along the phillips curve, and ( iii ) should be more independent following a seminal article by barro and gordon in 1983iv. page 4 sur 13 the recent fall in inflation has been more rapid and less costly in terms of growth and employment than in the 1980s, see figures 3 and 4 v. why the difference? a convincing answer by goodfriend and king is that most of the high recessionary cost of the volcker disinflation was due to the fed ’ s “ imperfect credibility ” vi. much of the battle volcker had to fight was against persistently high inflation expectations, a legacy of the loss of control in the 1970s. this time, central bank credibility led the effects of commodity shocks to prices “ to mostly and quickly fade away ” as emphasized by bernanke and blanchard ( 2024 ) vii. figure 5 shows that inflation expectations remained broadly anchored despite large shocks, especially after the first rate hike. the question was not if inflation would converge to target but when. this credibility doesn ’ t come from nowhere but from ( a ) independence, ( b ) simple and transparent objectives ( inflation targeting ), and ( c ) decisive past actions. central banks nevertheless also had to ‘ walk the talk ’. credibility is an asset to be preserved, not an inheritance to be exploited. in the case of the ecb, our monetary policy responses were forceful and persistent : from july 2022 to september 2023, we raised our key interest rates by 450bps. page 5 sur 13 as shown by bauer et al ( 2024 ) viii in the us case and apparent in figure 6 from banque de france work on the euro area ix, the market perception of ecb responsiveness –

occasions, the policy mix has served us pretty well, for instance in 2009 in response to financial crises, or in 2020 in response to the covid crisis. in both cases, monetary and fiscal policies were clearly counter - cyclical in the euro area. from 2014 to 2019, a few cracks appeared in the simple, maastrichtian distribution of tasks, as the eurosystem was struggling to lift the inflation rate while the aggregate 1 / 4 bis - central bankers'speeches fiscal stance in the euro area was flat. some doubts appeared as to the ability of monetary policy alone to reach the 2 % inflation target. at the zero lower bound, monetary policy had become relatively less powerful whereas fiscal policy benefited from the lack of crowding out effect, hence becoming more effective. in his speech at jackson hole, in august 2014, mario draghi explicitly called for a coordination of monetary and fiscal policy, declaring that " it would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy ". ii but the real shock to the policy mix came with the energy crisis, in 2022. following its mandate of stable inflation, the eurosystem raised its interest rates ten times between july 2022 and september 2023, with a total increase of 450 basis points. simultaneously, though, the post - covid adjustment of fiscal balances was slowed down by the introduction of costly measures to protect households and firms from a sudden and temporary rise in energy prices. some of these fiscal measures had the same goal as monetary policy, i. e. stabilising inflation. according to imf estimates, iii these measures reduced inflation by 2. 2 percentage points in 2022, at a budgetary cost of 3. 3 % of gdp in the euro area. in a new keynesian model, a standard fiscal stimulus of the same magnitude would rather lead to an increase in inflation of between 0. 3 and 1 percentage point. smoothing price increases may have helped the real economy to adjust and limited the price - wage spiral. the fact that the shock on energy prices was only temporary has validated this strategy ex post, although at a relatively high fiscal cost. this episode reminds us of the existence of cost - push shocks and the need for governments to monitor not only the output gap but also the inflation rate at the country level. jean - claude trichet was famous for brandishing graphs showing cumulated divergence of unit labour costs across the euro area. such divergence was