Recent energy and food price surges, in the wake of Russia's invasion of Ukraine, have exacerbated inflation pressuresthat are unusually high by the standards of the past two decades. High and rising inflation has prompted many emerging market and developing economy (EMDE) central banks and some...

This working paper offers some considerations on the monetary policy framework of the European Central Bank. The trade-offs arising from adopting a point target configuration over a range target one are assessed in terms of their flexibility vs. inflation anchoring properties. This layout is...

Global inflation has risen sharply from its lows in mid-2020, on rebounding global demand, supply bottlenecks, and soaring food and energy prices, especially since the Russian Federation's invasion of Ukraine. Markets expect inflation to peak in mid-2022 and then decline, but to remain elevated...

The paper analyses the reasons for Japan's persistently low inflation since the bursting of the Japanese bubble economy (low inflation conundrum). It is shown that Japan experienced a structural break from a high-growth period with relatively high inflation to a low-growth period with...

We study the effects of forward looking communication in an environment of rising inflation rates on German consumers' inflation expectations using a randomized control trial. We show that information about rising inflation increases short- and long-term inflation expectations. This initial...

The European Central Bank (ECB) recently proclaimed a more active role for itself in the fight against climate change. Did the European Parliament (EP) play a part in this regard, and if so what was it? To answer this question, this paper builds on a multi-method text analysis of original...

We provide evidence on the reactions of the level and probability distribution of households’ expectations of inflation in the euro area to the ECB’s monetary strategy change to a symmetric inflation target in July 2021, and to the subsequent strong rise in euro area inflation above target....

Leading up to the Bank of Canada’s 2021 renewal of its agreement with the government of Canada, this Commentary evaluates alternatives to the Bank’s current inflation-targeting agreement, and recommends that the agreement continue in its present form. The important elements of monetary...

During the Brazilian hyperinflation period (1980-1994), several plans to control the inflation (stabilization plans) were implemented, relying on very diverse premises and a wide range of instruments of economic policy. Nevertheless, none of these plans had obtained success in the goal of...

A credible target zone exchange rate regime with a given exchange rate band implies bounds on the amount of depreciation and appreciation of the domestic currency. This implies, for given foreign interest rates, bounds on the domestic-currency rate of return on foreign investment: a...

This paper defines an efficient rule for monetary policy as one that minimizes a weighted sum of output variance and inflation variance. It derives several results about the efficiency of alternative rules in a simple macroeconomic model. First, efficient rules can be expressed as 'Taylor rules'...

A monetary policy strategy that keeps inflation expectations solidly anchored in line with a clearly communicated definition of price stability supports the achievement of both price stability and economic activity goals. Providing an enduring nominal anchor succeeds in taming inflation scares...

The experience of the EFSD in the last 10 years has raised important questions about the developmental role an RFA could play for low income or less-developed countries. Even though other RFAs do not have a development mandate, the EFSD’s operational model inspires the RFAs to reflect on their...

This paper analyzes the welfare costs related to changes in monetary policy and trend inflation in the Postwar U.S. economy. We use a medium-scale New Keynesian DSGE model and find the following results. First, changes in monetary policy and trend inflation play an essential role in reducing...

Undesirable real effects have been attributed to floating exchange rates in general, and the 1980-83 appreciation of the dollar in particular.In the appreciating country, the U.S., export industries lose competitiveness and so output falls. In the other country, say Europe, the exchange rate...

The paper investigates the process of inflation stabilization under conditions of international capital mobility. A first part looks at the traditional view of inflation and payments problems as a reflection of fiscal problems and deficit finance. From there the analysis proceeds to the...

This paper investigates the drivers of Turkish inflation by using a structural vector autoregression model, where monthly data on global oil prices, unemployment rates, inflation rates, policy rates and exchange rates are used. The empirical results show that Turkish inflation increases...

The paper provides a unified analysis of globalization effects on the inflation-output tradeoff and monetary policy, in the New-Keynesian framework. The main proposition of the paper is threefold. First, labor, goods, and capital mobility tend to flatten the tradeoff between inflation and...

Those of professional forecasters do. For a wide range of time series models for the euro area and its member states we find a higher average forecast accuracy of models that incorporate information on inflation expectations from the ECB's SPF and Consensus Economics compared to their...

Why are we seeing inflation? The government dropped about $5 trillion in people's bank accounts, a classic fiscal helicopter drop. Why did this one produce inflation? People do not believe this debt will be repaid. Will inflation continue? Whether we see a one-time price-level increase or...

We survey retail investors at an online bank to study beliefs about the autocorrelation of aggregate stock returns, and how these beliefs shape investment decisions measured in administrative account data. Individuals' beliefs exhibit substantial heterogeneity and predict trading responses to...

The paper discusses what we have learned from last year's currency crises in ERM and the Nordic countries about fixed exchange rates as a means to achieve price stability. After discussing the explanations for the crises, the paper concludes that fixed exchange rates are not a shortcut to price...

This paper analyzes a nominal anchor exchange rate policy as a domestic distortion, in the tradition of international trade theory. It is shown that, in addition to the problems of sustainability and exit pinpointed in the exchange rate literature, a nominal anchor exchange rate policy, while in...

We propose a new approach to assessing the anchoring of inflation expectations using "strategic surveys". Namely, we measure households' revisions in long-run inflation expectations after they are presented with different economic scenarios. A key advantage of this approach is that it provides a...

We use a representative online survey to investigate the inflation expectations of German consumers and the credibility of the ECB's inflation target during the recent high inflation period. We find that credibility has trended downwards since summer 2021, reaching an all-time low in April 2022....

This paper begins with a description of the inflation targeting arrangements currently in place in the four above-mentioned countries and their performance records through mid-1995 are reviewed. It is argued, however, that too little time has passed for conclusions to be drawn, so that tentative...

In a previous attempt to articulate the costs of inflation (Leigh-Pemberton (1992)), the Bank of England outlined the following costs of a fully-anticipated inflation: - the cost of economising on real money balances -- so-called shoe-leather' effects; - the costs of operating a...

This paper evaluates the welfare gain from achieving price stability and compares it to the cost of the transition. In calculating the gain from price stability, the paper emphasizes the distortions caused by the interaction of inflation and capital income taxes. Because inflation exacerbates...

The note analyzes how globalization forces induce monetary authorities, guided in their policies by the welfare criterion of a representative household, to put greater emphasis on reducing the inflation rate than on narrowing the output gaps

High and persistent inflation has been one of the distinguishing macroeconomic characteristics of many developing countries since the end of World War II. Countries afflicted by chronic inflation, however, have not taken their fate lightly and have engaged in repeated stabilization attempts....

This paper analyses how the output or unemployment cost of achieving a sustainable reduction in the rate of inflation depends on the structure of the wage-price process and how the "sacrifice ratio" can be minimized. In models where the natural rate is invariant under the anti-inflationary...

Monetary policy can achieve average inflation equal to a given inflation target and, at best, a good compromise between inflation variability and output-gap variability. Monetary policy cannot completely stabilize either inflation or the output gap. Increased credibility in the form of inflation...

Since 1947, hyperinflations (by Cagan's definition) in market economies have been rare. Much more common have been longer inflationary processes with inflation rates above 100 percent per annum. Based on a sample of 133 countries, and using the 100 percent threshold as the basis for a definition...

This paper derives loss functions for monetary policy that are grounded in the welfare of private agents, for optimizing models with nominal price rigidities. Inflation stabilization enhances welfare, insofar as variable inflation results in real distortions when prices are not adjusted...

Inflation targeting is a monetary policy rule that has implications for both the average performance of an economy and its business cycle behavior. We use a modern, rational expectations model to study the twin effects of this policy rule. The model highlights forward- looking consumption and...

Implementing a 'gradualist' policy of monetary contraction, in an open economy with a freely floating exchange rate but with nominal inertia in domestic labor costs, can lead to prompt and substantial changes in the nominal and real exchange rate. One of the virtues claimed for such exchange...

Monetary policy in the United States in the 1950s was remarkably modern. Analysis of Federal Reserve records shows that policymakers had an overarching aversion to inflation and were willing to accept significant costs to prevent it from rising to even moderate levels. This aversion to inflation...

In the aftermath of World War II, Italy and France experienced high inflation. The two countries enacted remarkably similar economic policy measures, but stabilization came at different times: for Italy at the end of 1947, for France a year later. Traditional explanations for the regained price...

In this paper we look at some empiricel evidence of and theoretical rationale for price inflexibility in the face of a decrease in short run demand in the Western-type industrialized economies. The empirical evidence suggests that price sluggishness is pervasive but varies across markets,...

This paper provides an explanation for the run-up of U.S. inflation in the 1960s and 1970s and the sharp disinflation in the early 1980s, which standard macroeconomic models have difficulties in addressing. I present a model in which rational policymakers learn about the behavior of the economy...

At its Board of Directors meeting in June, the Bank of Russia raised the key rate for the third time since the beginning of the year, by 0.5 p.p. to 5.5% per annum. This decision was caused by an accelerated inflation triggered by reviving demand as the containment measures were being lifted,...

Inflation persistence or ‘inertia’ has important consequences for monetary policy. Inflation which does not get eliminated today tends to persist entailing higher costs in the future. In turn, a monetary regime can exert significant influence on inflation persistence by its credibility and...

This paper provides a detailed discussion of the real phenomena that materialized in the stabilization period which followed the German hyper-inflation. Significant real dislocations arose after the monetary reform; and these can be attributed to a government policy which subsidized heavy...

We present a standard intertemporal model in which fiscal policy is determined by an optimizing but non-benevolent fiscal authority. If the fiscal authority is impatient, a money-based stabilization provides more fiscal discipline and higher welfare for the representative agent than does an...

On July 1 the Israeli government adopted a comprehensive emergency program for stabilization and recovery which has had dramatic consequences, at least in the very short-run. Within a few months inflation was down to 1-2 percent a month, foreign exchange reserves were rising rapidly andin spite...

In the late 1970s countries in Latin America's Southern Cone attempted to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange-rate devaluation. The stabilization programs gave rise to massive capital inflows, real exchange-rate appreciation, and...