Rogoff: a gold opportunity for Mario Draghi

«Cheaper imported oil is a huge bonanza for Europe, even if it produces deflation. It is, however, a lost opportunity if monetary policy is unable to take advantage to enhance the effect through easier monetary policy», says Kenneth Rogoff, Harvard’s Thomas D. Cabot Professor of Public Policy and Professor of Economics.

Interview by Jorge Nascimento Rodrigues
© JNR 2015

Oil prices at lows since more than 5 years and a half, the Euro at lows to the US dollar since 2005 and inflation in the Euro Zone below 0% can boost the European Economy if the European Central Bank (ECB) acts taking advantage of the triple situation. It is a gold opportunity for Mario Draghi to avoid the “japonization” of the region.

You said that is a once in a generation shock this reverse oil shock since june 2014. Why?

Large oil swings are more a once a decade occurrence. What I meant is that the combination of new shale technology (sharply raising production outside OPEC) combined with a dramatic and potentially historic slowdown in China’s 35 year growth spurt is a highly unusual combination

Do you think we can repeat the reverse oil shock from mid 2008 until 2009?

The 2008-09 shock reflected meltdown in advanced economies. This time, the oil price drop is going to be a huge boost for Europe and Japan especially

Do you expect a change of strategy at June 5 OPEC meeting?

It is a very long way away. By then Venezuela may well have defaulted, Russia may have a full blown banking crisis, etc.

The indirect effect of oil price crash – via “imported disinflation” – boosting the deflation risks in the Euro zone in 2015 is a serious problem, or ECB knows how to deal with that risk?

Cheaper imported oil is a huge bonanza for Europe, even if it produces deflation. It is, however, a lost opportunity if monetary policy is unable to take advantage to enhance the effect through easier monetary policy.

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