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Showing papers on "Inflation published in 2020"


Journal ArticleDOI
TL;DR: In this article, the authors argue that the new tools have proven effective at easing financial conditions when policy rates are constrained by the effective lower bound on short-term interest rates, and that they can be made even more effective in the future.
Abstract: To overcome the limits on traditional monetary policy imposed by the effective lower bound on short-term interest rates, in recent years the Federal Reserve and other advanced-economy central banks have deployed new policy tools. This lecture reviews what we know about the new monetary tools, focusing on quantitative easing (QE) and forward guidance, the principal new tools used by the Fed. I argue that the new tools have proven effective at easing financial conditions when policy rates are constrained by the lower bound, even when financial markets are functioning normally, and that they can be made even more effective in the future. Accordingly, the new tools should become part of the standard central bank toolkit. Simulations of the Fed's FRB/US model suggest that, if the nominal neutral interest rate is in the range of 2–3 percent, consistent with most estimates for the United States, then a combination of QE and forward guidance can provide the equivalent of roughly 3 percentage points of policy space, largely offsetting the effects of the lower bound. If the neutral rate is much lower, however, then overcoming the effects of the lower bound may require additional measures, such as a moderate increase in the inflation target or greater reliance on fiscal policy for economic stabilization.

163 citations


Journal ArticleDOI
TL;DR: Coibion et al. as mentioned in this paper used a unique design feature of a survey of Italian firms to study the causal effect of inflation expectations on firms' economic decisions, and found that higher expectations on the part of firms leads them to raise their prices, increase demand for credit, and reduce their employment and capital.
Abstract: Author(s): Coibion, O; Gorodnichenko, Y; Ropele, T | Abstract: We use a unique design feature of a survey of Italian firms to study the causal effect of inflation expectations on firms' economic decisions. In the survey, a randomly chosen subset of firms is repeatedly treated with information about recent inflation whereas other firms are not. This information treatment generates exogenous variation in inflation expectations. We find that higher inflation expectations on the part of firms leads them to raise their prices, increase demand for credit, and reduce their employment and capital. However, when policy rates are constrained by the effective lower bound, demand effects are stronger, leading firms to raise their prices more and no longer reduce their employment.

133 citations


Journal ArticleDOI
TL;DR: This article assess the prospects for central banks using inflation expectations as a policy tool for stabilization purposes, and provide suggestions for how monetary policy-makers could pierce this veil of inattention through new communication strategies as well as the potential pitfalls to trying to do so.

124 citations


Journal ArticleDOI
TL;DR: The authors show that monetary interventions have large and significant effects using historical panel data since 1870 and that the causal effect of these interventions depends on whether the economy is above or below potential, inflation is low, and there is a credit boom in mortgage markets.

96 citations


Journal ArticleDOI
01 Aug 2020-Energy
TL;DR: In this paper, the authors reviewed whether oil prices (OP) in Venezuela affect inflation (INF) in the presence of geopolitical risk (GPR) and found that OP plays a crucial role in the formation of INF in the context of higher uncertainties.

96 citations


Report SeriesDOI
TL;DR: The authors survey households about their expectations of the economic fallout of the COVID-19 pandemic, in real time and at daily frequency, and ask about the expected impact on output and inflation over a one-year horizon.
Abstract: We survey households about their expectations of the economic fallout of the COVID-19 pandemic, in real time and at daily frequency. Our baseline question asks about the expected impact on output and inflation over a one-year horizon. Starting on March 10, the median response suggests that the expected output loss is still moderate. This changes over the course of three weeks: At the end of March, the expected loss amounts to some 15 percent. Meanwhile, the pandemic is expected to raise inflation considerably. The uncertainty about these effects is very large. In the second part of the paper we feed the survey data into a New Keynesian business cycle model. Because the economic costs of the pandemic have not fully materialized yet but are nonetheless (a) anticipated and (b) uncertain, private expenditure collapses, thereby amplifying and bringing forward in time the economic costs of the pandemic. The short-run economic impact of the pandemic depends critically on whether monetary policy accommodates the drop in the natural rate of interest or not.

86 citations


ReportDOI
TL;DR: The authors argue that the declining worker power hypothesis is more compelling as an explanation for observed changes than increases in firms' market power, both because it can simultaneously explain a falling labor share and a reduced NAIRU, and because it is more directly supported by the data.
Abstract: Rising profitability and market valuations of US businesses, sluggish wage growth and a declining labor share of income, and reduced unemployment and inflation, have defined the macroeconomic environment of the last generation. This paper offers a unified explanation for these phenomena based on reduced worker power. Using individual, industry, and state-level data, we demonstrate that measures of reduced worker power are associated with lower wage levels, higher pr ofit shares, and reductions in measures of the NAIRU. We argue that the declining worker power hypothesis is more compelling as an explanation for observed changes than increases in firms’ market power, both because it can simultaneously explain a falling labor share and a reduced NAIRU, and because it is more directly supported by the data.

80 citations


BookDOI
01 Oct 2020
TL;DR: The authors argue that the underlying forces of demography and globalisation will shortly reverse three multi-decade global trends, which will raise inflation and interest rates, but lead to a pullback in inequality.
Abstract: This original and panoramic book proposes that the underlying forces of demography and globalisation will shortly reverse three multi-decade global trends – it will raise inflation and interest rates, but lead to a pullback in inequality. “Whatever the future holds”, the authors argue, “it will be nothing like the past”. Deflationary headwinds over the last three decades have been primarily due to an enormous surge in the world’s available labour supply, owing to very favourable demographic trends and the entry of China and Eastern Europe into the world’s trading system. This book demonstrates how these demographic trends are on the point of reversing sharply, coinciding with a retreat from globalisation. The result? Ageing can be expected to raise inflation and interest rates, bringing a slew of problems for an over-indebted world economy, but is also anticipated to increase the share of labour, so that inequality falls. Covering many social and political factors, as well as those that are more purely macroeconomic, the authors address topics including ageing, dementia, inequality, populism, retirement and debt finance, among others.

75 citations


Journal ArticleDOI
TL;DR: In this article, the authors decompose the structural shocks of oil price fluctuations into four types: oil supply shocks, global demand shocks, domestic demand shocks and oil-specific demand shocks.

73 citations


Journal ArticleDOI
TL;DR: In this paper, the authors investigated the effect of different economic and financial crises, such as inflation crisis, stock market crash, debt crisis, and banking crisis, on international tourism flows.
Abstract: This article investigates the effect of different economic and financial crises, such as inflation crisis, stock market crash, debt crisis, and banking crisis on international tourism flows using a...

66 citations



ReportDOI
TL;DR: The authors compare the causal effects of forward guidance communication about future interest rates on households' expectations of inflation, mortgage rates, and unemployment to the effects of communicating about future inflation in a randomized controlled trial using more than 25,000 U.S individuals in the Nielsen Homescan panel.
Abstract: We compare the causal effects of forward guidance communication about future interest rates on households’ expectations of inflation, mortgage rates, and unemployment to the effects of communication about future inflation in a randomized controlled trial using more than 25,000 U.S. individuals in the Nielsen Homescan panel. We elicit individuals’ expectations and then provide 22 different forms of information regarding past, current and/or future inflation and interest rates. Information treatments about current and next year’s interest rates have a strong effect on household expectations but treatments beyond one year do not have any additional impact on forecasts. Exogenous variation in inflation expectations transmits into other expectations. The richness of our survey allows us to better understand how individuals form expectations about macroeconomic variables jointly and the non-response to long-run forward guidance is consistent with models in which agents have constrained capacity to collect and process information.

ReportDOI
TL;DR: The Covid-19 Pandemic has led to changes in consumer expenditure patterns that can introduce significant bias in the measurement of inflation as discussed by the authors, which can cause significant bias for the use of data collec
Abstract: The Covid-19 Pandemic has led to changes in consumer expenditure patterns that can introduce significant bias in the measurement of inflation use data collec

Journal ArticleDOI
TL;DR: This article showed that consumers rely on the prices of goods in their personal grocery bundles when forming expectations about aggregate inflation, and that the weights consumers assign to price changes depend on the frequency of purchase, rather than expenditure share.
Abstract: We show that, when forming expectations about aggregate inflation, consumers rely on the prices of goods in their personal grocery bundles Our analysis uses novel representative micro data that uniquely match individual expectations, detailed information about consumption bundles, and item-level prices The data also reveal that the weights consumers assign to price changes depend on the frequency of purchase, rather than expenditure share, and that positive price changes loom larger than similar-sized negative price changes Prices of goods offered in the same store but not purchased (any more) do not affect inflation expectations, nor do other dimensions such as the volatility of price changes Our results provide empirical guidance for models of expectations formation with heterogeneous consumers

ReportDOI
TL;DR: In this article, the authors estimate the slope of the Phillips curve in the cross section of U.S. states using newly constructed state-level price indexes for non-tradeable goods back to 1978.
Abstract: We estimate the slope of the Phillips curve in the cross section of U.S. states using newly constructed state-level price indexes for non-tradeable goods back to 1978. Our estimates indicate that the Phillips curve is very flat and was very flat even during the early 1980s. We estimate only a modest decline in the slope of the Phillips curve since the 1980s. We use a multi-region model to infer the slope of the aggregate Phillips curve from our regional estimates. Applying our estimates to recent unemployment dynamics yields essentially no missing disinflation or missing reinflation over the past few business cycles. Our results imply that the sharp drop in core inflation in the early 1980s was mostly due to shifting expectations about long-run monetary policy as opposed to a steep Phillips curve, and the greater stability of inflation since the 1990s is mostly due to long-run inflationary expectations becoming more firmly anchored.

Journal ArticleDOI
TL;DR: In this paper, the authors examined the effect of legal central bank independence on inflation in developing countries and found that higher central bank autonomy is associated with lower inflation rates, and that this effect is stronger the more democratic a country is, but also present in non-democratic countries.

ReportDOI
TL;DR: This paper showed that the provision of information about inflation to households and firms can sometimes backfire in terms of their subsequent decisions, which can lead to negative income effects which can depress economic activity.
Abstract: New surveys provide a wealth of information on how economic agents form their expectations and how those expectations shape their decisions. We review recent evidence on how changes in macroeconomic expectations, particularly inflation expectations, affect households’ and firms’ actions. We show that the provision of information about inflation to households and firms can sometimes backfire in terms of their subsequent decisions. Whether or not this is the case hinges on how individuals interpret the news about inflation: supply-side interpretations (“inflation is bad for the economy”) lead to negative income effects, which can depress economic activity. We show that households in advanced economies, unlike professional forecasters, typically have such a supply-side interpretation, as do many firms. New communication strategies could avoid public misinterpretation of policy decisions.

Journal ArticleDOI
TL;DR: This article applied a N-ARDL framework to two longstanding inflation targeting policy regimes in order to assess the relation between oil prices dynamics and inflation expectations and the further consequences created by a proximal ZLB situation.

Journal ArticleDOI
TL;DR: In this paper, the authors analyzed the Eurosystem's liquidity management during normal times, crisis times and times of too low inflation, and developed a relatively simple theoretical model in which banks operate under a structural liquidity surplus.
Abstract: In March 2015, the Eurosystem launched its QE programme. The asset purchases induced a rapid and strong increase in excess reserves, implying a structural liquidity surplus in the euro area banking sector. Against this background, the first part of this paper analyses the Eurosystem’s liquidity management during normal times, crisis times and times of too low inflation. With a focus on the latter, the second part of this paper develops a relatively simple theoretical model in which banks operate under a structural liquidity surplus. The model shows that increasing excess reserves have no or even a contractionary impact on bank loan supply. As the newly created excess reserves are heterogeneously distributed across euro area countries, the impact of QE on bank loan supply may differ across countries. Moreover, we derive implications for monetary policy implementation. Increases in the central bank’s main refinancing rate as well as in the minimum reserve ratio and decreases in the central bank’s deposit rate develop expansionary effects on loan supply – contrary to the case in which banks face a structural liquidity deficit.

Journal ArticleDOI
TL;DR: In this paper, the authors show that the initial response of inflation to monetary shocks is not sufficient to discriminate across models and ignoring heterogeneous consumption shares and input-output linkages identifies the wrong sectors from which the real effects originate.

Journal ArticleDOI
TL;DR: This article developed an empirical model to study the influence of global factors in driving trend inflation and the inflation gap and applied their model to 7 developed economies and 21 emerging market economies and found that while global factors can have a sizeable influence on the inflation gaps, they play only a marginal role in driving the trend inflation.

Journal ArticleDOI
TL;DR: In this paper, the authors used a dynamic probit estimator on three rounds of panel data from urban Ethiopia to estimate a model of the probability of being energy poor and investigate the persistence of energy poverty.

Journal ArticleDOI
TL;DR: In this article, a comparative analysis of inflation hedging properties of stocks, gold and real estates for the US is presented, which shows that real estates and stocks are good hedges against inflation, while gold investment defies Fisher's hypothesis.

ReportDOI
TL;DR: The authors showed that zombie credit can create excess production capacity and put downward pressure on markups and prices, and showed that cheap credit to impaired firms has a disinflationary effect.
Abstract: We show that cheap credit to impaired firms has a disinflationary effect. By helping distressed firms to stay afloat, “zombie credit” can create excess production capacity, and in turn, put downward pressure on markups and prices. We test this mechanism exploiting granular inflation and firm-level data from twelve European countries. In the cross-section of industries and countries, we find that a rise of zombie credit is associated with a decrease in firm defaults and entries, firm markups and product prices; lower productivity; and, an increase in aggregate sales as well as material and labor cost. These results hold at the firm-level, where we document spillover effects to healthy firms in markets with high zombie credit. Our partial equilibrium estimates suggest that without a rise in zombie credit post 2012, annual inflation in Europe during 2012-2016 would have been 0.45 percentage points higher.

Journal ArticleDOI
TL;DR: This article analyzed the impact of exchange rate pass-through (ERPT) on inflation expectations in a small open inflation targeting economy and found that ERPT has significant implications for inflation expectations.

Journal ArticleDOI
TL;DR: In this paper, a slow-roll analysis of the three-dimensional parameter space of the $R^2$ coefficient was performed and three classes of inflationary solutions were found, but only pure Higgs inflation and attractor solutions fit observations.
Abstract: We consider Higgs inflation with an $\alpha R^2$ term. It adds a new scalar degree of freedom, which leads to a two-field model of inflation. We do a complete slow-roll analysis of the three-dimensional parameter space of the $R^2$ coefficient $\alpha$, the non-minimal coupling $\xi$ and the Higgs self-coupling $\lambda$. We find three classes of inflationary solutions, but only pure $R^2$ and attractor solutions fit observations. We find that pure Higgs inflation is impossible when the $R^2$ term is present regardless of how small $\alpha$ is. However, we can have Higgs-like inflation, where the amplitude of the perturbations does not depend on $\alpha$ and the predictions as a function of e-folds are the same as in Higgs inflation, although the inflationary trajectory is curved in field space. The spectral index is $0.939 < n_R < 0.967$, and constraining it to the observed range, the tensor-to-scalar ratio varies from $3.8\times10^{-3}$ to the maximum allowed by observations, $0.079$. Observational constraints on isocurvature perturbations contribute to these limits, whereas non-Gaussianity is automatically in the range allowed by observations.

Journal ArticleDOI
TL;DR: This paper developed a theory of low-frequency movements in inflation expectations, and use it to interpret joint dynamics of inflation and inflation expectations for the United States and other countries over the post-war period.
Abstract: We develop a theory of low-frequency movements in inflation expectations, and use it to interpret joint dynamics of inflation and inflation expectations for the United States and other countries over the post-war period. In our theory long-run inflation expectations are endogenous. They are driven by short-run inflation surprises, in a way that depends on recent forecasting performance and monetary policy. This distinguishes our theory from common explanations of low-frequency properties of inflation. The model, estimated using only inflation and short-term forecasts from professional surveys, accurately predicts observed measures of long-term inflation expectations and identifies episodes of unanchored expectations.

Journal ArticleDOI
TL;DR: The authors analyzed the asymmetric effects of financial development on economic growth using a model augmented with inflation and government expenditure asymmetries to inform model specification, and showed that the model can be used to predict economic growth.
Abstract: This study analyzed the asymmetric effects of financial development on economic growth using a model augmented with inflation and government expenditure asymmetries to inform model specification. T...

Journal ArticleDOI
TL;DR: This article reviewed a substantial range of empirical evidence on this point, by assessing the performance of the conventional expectations-augmented Phillips curve for both prices and wages, based on both historical macro or national level data and panel data for states and cities.

Journal ArticleDOI
TL;DR: In this paper, the effects of monetary policy on household consumption expenditures in the euro area were studied. And the authors found that the indirect labor income channel and the housing wealth effect are strong drivers of the aggregate consumption response to monetary policy and explain the cross-country heterogeneity in these responses.