Cleveland Fed research: The Long-Run Costs of Higher Inflation
Elevated long-term inflation can levy steep costs on society due to the everyday frictions that prevent the economy from instantly adapting to changing conditions, according to a new report from the Federal Reserve Bank of Cleveland’s Center for Inflation Research.
In “The Long-Run Costs of Higher Inflation,” researchers Jean-Paul L’Huillier Bowles and Martin DeLuca describe several of those frictions.
For instance, higher inflation pushes people to hold more cash for purchases, while also requiring them to spend more time and mental energy on their finances. In addition, higher inflation forces firms to spend more time updating prices and wages, and it could cause lenders to make fewer loans.
Those frictions can erode purchasing power, distort capital markets and steepen the Phillips curve, making short-term inflation more volatile.
Read the Economic Commentary: The Long-Run Costs of Higher Inflation
More on inflation: The Center for Inflation Research
Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.
The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.
Media contact
Chuck Soder, chuck.soder@clev.frb.org, 216.672.2798
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