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Recent Inflation-Related Research

Inflation-Related Economic Commentary

Economic Commentary provides research, analysis, and perspectives on an economic topic or policy issue.

  • Cyclical versus Acyclical Inflation: A Deeper Dive


    Saeed Zaman

    Abstract

    This Commentary builds on recent research separating the components of overall inflation into cyclical and acyclical categories, but it does so at a finer level of disaggregation than previous analyses to understand recent inflation developments in the two categories. The inflation rate among cyclically sensitive subcomponents, which comprise roughly 40 percent of overall core PCE inflation, has generally continued to firm in recent years in line with a strengthening labor market and has returned to near pre-Great Recession levels. By contrast, the inflation rate among the acyclical subcomponents remains subdued. A modest firming in acyclical core PCE inflation to a more normal level, combined with ongoing strength in the labor market, would be enough to return core PCE inflation to 2 percent within approximately one year.  Read More

  • The Flattening of the Phillips Curve: Policy Implications Depend on the Cause


    Filippo Occhino

    Abstract

    According to the historical relationship known as the Phillips curve, strengthening of the economy is commonly associated with increasing inflation. With inflation having only modestly picked up in the past few years as the economy has become more robust, many believe the Phillips curve relationship has weakened, with the curve becoming flatter. I show that the flattening can be due to very different types of structural changes and that knowing the type of change that has occurred is crucial for choosing the appropriate monetary policy.  Read More

  • Behavior of a New Median PCE Measure: A Tale of Tails


    Daniel R Carroll Randal J Verbrugge

    Abstract

    We introduce two new measures of trend inflation, a median PCE inflation rate and a median PCE excluding OER inflation rate, and investigate their performance. Our analysis indicates that both perform comparably to other simple trend inflation estimators such as the trimmed-mean PCE. Furthermore, we find that the performance of the median PCE is related to skewness in the distribution of cross-sectional growth rates across categories in the PCE, and our results suggest that the Bowley skewness statistic may be useful in forecasting.  Read More

Inflation-Related Working Papers

Working papers are preliminary versions of technical papers containing the results and discussions of current research.

  • WP 19-16 | A Theory of Intrinsic Inflation Persistence


    Takushi Kurozumi Willem Van Zandweghe

    Abstract

    We propose a novel theory of intrinsic inflation persistence by introducing trend inflation and variable elasticity of demand in a model with staggered price and wage setting. Under nonzero trend inflation, the variable elasticity generates intrinsic persistence in inflation through a measure of price dispersion stemming from staggered price setting. It also introduces intrinsic persistence in wage inflation under staggered wage setting, which affects price inflation. With the theory we show that inflation exhibits a persistent, hump-shaped response to a monetary policy shock. We also show that a credible disinflation leads to a gradual decline in inflation and a fall in output, and lower trend inflation reduces inflation persistence, as observed around the time of the Volcker disinflation.  Read More

  • WP 19-15 | Thinking Outside the Box: Do SPF Respondents Have Anchored Inflation Expectations?


    Carola Conces Binder Wesley Janson Randal J Verbrugge

    Abstract

    Despite the stability of the median 10-year inflation expectations in the Survey of Professional Forecasters (SPF) near 2 percent, we show that not a single SPF respondent’s expectations have been anchored at the target since the Federal Open Market Committee’s (FOMC) enactment of an inflation target in January 2012, or even since 2015. However, we find significant evidence for “delayed anchoring,” or a move toward being anchored, particularly after the federal funds rate lifted off in December 2015.  Read More

  • WP 18-14R | A New Look at Historical Monetary Policy and the Great Inflation through the Lens of a Persistence-Dependent Policy Rule


    Richard Ashley Kwok Ping Tsang Randal J Verbrugge

    Original Paper: WP 18-14

    Abstract

    The origins of the Great Inflation, a central 20th century U.S. macroeconomic event, remain contested. Prominent explanations are poor forecasts or deficient activity gap estimates. An alternative view: the FOMC was unwilling to fight inflation, perhaps due to political pressures. Our findings, based on a novel approach, support the latter view. New econometric tools allow us to credibly identify the particular activity gap, if any, in use. Persistence-dependent unemployment (gap) responses in the 1970s were essentially the same pre- and post-Volcker. Conversely, FOMC behavior vis-à-vis inflation—also persistence-dependent—changed markedly starting with Volcker, consistent with (though not proving) the political pressures view.  Read More