The Lucas Critique Applied to Inflation Models
The Lucas critique explains why every major Phillips Curve breakdown since 1970 was predictable. Reduced-form inflation models inherit the policy...
Inflation
Inflation can have a significant impact on the economy, and what policymakers can do to keep it under control.
Cost-Push vs Demand-Pull: A Modern Reassessment
The cost-push vs demand-pull framework still organizes inflation discussions, but modern episodes mix both forces. Expectations and markups complicate the...
Inflation Persistence: Why Past Inflation Drives Future Inflation
Inflation persistence measures how strongly past inflation drives future inflation. It collapsed after the Volcker disinflation and rebounded modestly during...
Sacrifice Ratio: Output Cost of Disinflation
The sacrifice ratio measures the output lost per percentage point of inflation reduction. The 1980s episodes produced ratios near 1.5;...
Wage-Price Spirals: Theory, Evidence, 1970s vs 2022
Wage-price spirals require wage indexation, weak monetary anchors, and unanchored expectations. The 1970s satisfied all three; 2022 did not. The...
Stagflation Explained: When Inflation and Recession Hit Together
Stagflation explained: the macroeconomic configuration in which inflation and recession arrive together, breaking the standard policy trade-off and binding central...
Inflation vs Hyperinflation: How High Does Inflation Have to Get?
Inflation vs hyperinflation is not just a difference of degree. Cagan's 50%-per-month threshold marks the point at which money itself...
Inflation Pass-Through Exchange Rates: How Currency Moves Reach Domestic Prices
Inflation pass-through exchange rates explains how currency depreciation moves through import prices, producer costs, consumer inflation, and expectations.
Core CPI Explained: Why the Fed Looks Through Food and Energy
Core CPI explained: why the Fed strips food and energy from the consumer price index to isolate the underlying inflation...
PCE Index explained: The Fed’s Preferred Inflation Measure
PCE Index explained: the Fed’s preferred inflation measure tracks broad consumer spending, chain weighting, core inflation, and the path toward...