Playing the long game - how should monetary policy adapt to the Great Reconfiguration?
Speech by Mr Fabio Panetta, Governor of the Bank of Italy, at the closing conference of the ESCB Research Network on "Challenges for Monetary Policy Transmission in a Changing World (ChaMP)", hosted by the Bank of Italy, Rome, 7 July 2026.
In 2024, a research network was established to examine the unprecedented challenges facing the global economy. The previous four years were characterized by a combination of shocks and structural changes that have no historical parallels. These forces, including geopolitical tensions, trade fragmentation, and technological disruption, have become a defining feature of the global economy and are no longer seen as temporary disturbances.
The persistent uncertainty caused by these forces poses a common challenge for central banks. They are difficult to classify as pure supply or demand shocks and affect the economy on multiple fronts. Supply-side impacts include energy prices, production costs, trade flows, and critical inputs. Demand-side effects encompass income, confidence, consumption, and investment. Moreover, these forces can alter the structural relations within the economy and even the transmission of monetary policy itself.
In response to this environment, central banks must not only recalibrate their policy stance but also periodically review how they examine the inflation outlook, assess the policy stance, and adjust the reaction function. This requires a more comprehensive approach to understanding the evolving economic landscape.
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