What will happen when inflation rises if central banks practice yield curve control?
In OECD countries currently: Inflation is low due to small wage increases, rising unemployment and falling commodity prices; Central banks have explicitly or de facto switched to yield curve control and control of long-term nominal interest rates. These two developments are consistent in the current situation, but what will happen tomorrow if inflation returns (given the health standards caused by the COVID pandemic, the rise in commodity prices, and more structurally, population ageing, the upturn in wages and the return to regional value chains)? Central banks will then be faced with a difficult choice: Either to maintain the "yield curve control", switch to negative real long-term interest rates, and formalise the fact that central banks no longer control inflation; Or abandon the yield curve control, drive up real interest rates to respond to inflation, and take the risk of a debt crisis.