Abstract
In the decade that followed the global economic crisis of 2007-09 reflationary forces have been replaced by deflationary ones. Low
inflation substantially complicated inflation management. Most central banks in advanced economies deployed new unconventional
instruments to affect credit conditions and to provide liquidity at a large scale after short term policy rates reached their effective lower
bound. Nowadays deflationary pressures are receding, but core inflation remains subdued and still below target. In such an environment
the Phillips Curve relationship – the trade-off between unemployment and inflation – the theoretical basis for understanding inflation
used in central banks – has largely broken down and there has been significant questioning of its usefulness predicting inflation. The
article attempts to show, firstly, that low inflation is the result of great changes in the global economic and financial landscape. They are,
first of all, structural, demographic and social changes, globalization and financialization of economy, technological innovations, rising
debt, uncertainty over inflation. Secondly, monetary measures should be supported by all policy tools – fiscal, macroprudential policies
and structural reforms – both individually and collectively used. The recent global economic upswing is laying hopes for allowing central
banks to eventually return their monetary policies to normal settings but this process will be gradual and may take several years. One
cannot exclude that unconventional monetary policies still will be used when economic conditions and interest rates normalize.
