Dr. Kieran McQuinn:

That is a very interesting question. It will ultimately depend on the scale. Unfortunately, I need to answer the question in the same way. It goes back to the scale and persistence of the difficulties. If we are into a persistent period of much higher energy prices, that will ultimately feed into higher inflation and will ultimately feed through to higher interest rates as far as central banks are concerned. They will need to start increasing policy rates at some stage to get a handle or put a lid on the inflationary issue. If the crisis is relatively short-lived somehow - obviously we all hope it is - and we see some return to fairly normal energy prices, maybe by the latter half of this year, then it is quite feasible we will see a return to the kind of longer term path where interest rates are concerned. However, in the short term we need to be prepared for the possibility of policy rate increases given the sheer inflationary impact that is likely to occur from energy prices.

The argument Furman and Summers put forward is to simply adjust budgetary stance. The same framework can still be used. It just requires factoring in higher interest rate charges and possibly a lower GDP growth rate because of the effect of the crisis, and that will ultimately change the target to be set. The framework they are suggesting to be applied is just as valid into the future irrespective of the Ukrainian situation. It would obviously require considerably different values for future interest rate costs and possibly for the future growth path of the economy. That will ultimately impact the target GDP ratio to be set, or the surplus or deficit targets in fiscal policy from year to year.