Reflazione

Reflazione is the set of macroeconomic policies designed to raise real output and inflation toward a designated target, typically after a period of deflation or weak growth. In Italian economic discourse, the term signals a deliberate attempt to lift demand and price levels without triggering runaway inflation.

Policy tools include expansionary monetary measures, such as lower interest rates, asset purchases, and forward guidance, alongside expansionary fiscal actions like increased public investment, tax relief, and income support. The mix aims to boost aggregate demand, absorb spare capacity, and anchor inflation expectations near the target.

Outcomes generally include higher real GDP growth and employment in the short run, as well as a rise in the general price level. The effectiveness depends on slack in the economy, the supply response, and credibility. Risks include inflation overshoot, debt sustainability concerns, misallocation of resources, and currency depreciation in open economies.

Reflazione is typically contrasted with deflationary or neutral policies and is most common when inflation undershoots the target. It is distinct from long-run growth policies and must be calibrated to avoid overheating once the output gap closes.