Current economic crisis is created by sharp reducing shocks to the supply side - bad economic weather, political restrictions to the trade, service availability reduction in the transportation sector. No similar reduction of available workforce is recorded (than can be explained, at least, partially, but the automation). While I tend to agree that monetary tighetning can reduce the demand side and hence the inflation, at the same time I tend to think that there should be better tools available to tame the inflation without incurring social costs that come to unjustified reduction of the demand side (demand reduction would be justified if it was caused by bubbles).

Is there economic research that considers non-monetary tools for taming inflation, specifically that could boost the supply side.

Just one example. Out country rejects household and company solar panel connections to the grid, because the are no enough transmission lines and no enough electricity storage capacity. Our country at the same time experiences record high temperatures and record high number of solar days. And of course, record high electricity prices and looming energy winter. At the same time our country continues with building mega-projects like railways (which are very unpopular and rarely used in our country, majority own their private cars) and large prison buildings. I wonder - is there economic research that would consider the sharp reallocation of investments in the case of crisis? I.e. we could stop the building mega-projects and move resources to the building transmission lines and electricity storage. Or other sharp ignition of projects that would specifically boost the supply side in case when crisis is created by the short-to-medium (and possibly even long) term shocks to the supply side?

Of course, monetary policy should be in place anyway as a last tool to correct for the lack of action by politicians. But my understanding is that economic research consider both spheres - economic measures that are designed and implemented by politicians and the monetary policy that is implemented by the central banks.

  • $\begingroup$ Which country is "our" country? Would that be the US? $\endgroup$
    – BrsG
    Aug 16, 2022 at 11:40
  • $\begingroup$ No, small country in the Eastern Europe, member of the European Union, one with almost the highest inflation in the Union. $\endgroup$
    – TomR
    Aug 16, 2022 at 11:57
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    $\begingroup$ Fiscal tightening is a traditional alternative to monetary tightening, but is also designed to reduce demand rather than increase supply. Apart from targeted removal of bottlenecks, most measures aimed at increasing overall supply have historically had the side effect of increasing demand and inflation. For example the construction of the British national electricity grid in the 1930s probably increased overall employment and general prices while reducing electricity prices (all three good things at the time - the problem then was deflation rather than inflation) $\endgroup$
    – Henry
    Aug 16, 2022 at 12:58
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    $\begingroup$ Note that rejecting solar panel connections to the grid is not a rejection of solar power. You are (presumably) welcome to buy solar panels and inverters and make your own little solar grid, even share it with your neighbours. $\endgroup$
    – user253751
    Aug 16, 2022 at 20:59
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    $\begingroup$ I think you are asking whether it's possible to increase supply instead of decreasing demand, is that right? $\endgroup$
    – user253751
    Aug 16, 2022 at 21:00


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