The economic characteristics of the COVID-19 crisis differ fromthose of previous crises. It is a combination of demand- andsupply-side constraints which led to the formation of a monetaryoverhang that will be unfrozen once the pandemic ends.Monetary policy must take this effect into consideration, alongwith other pro-inflationary factors, in the post-pandemic era. Itmust also think in advance about how to avoid a policy trapcoming from fiscal dominance.

This paper was provided by the Policy Department for Economic,Scientific and Quality of Life Policies at the request of thecommittee on Economic and Monetary Affairs (ECON) ahead ofthe Monetary Dialogue with the ECB President on 18 March 2021.