IDEAS home Printed from https://ideas.repec.org/a/ecb/ecbrbu/20250130.html
   My bibliography  Save this article

Why monetary policy should crack down harder during high inflation

Author

Listed:
  • Karadi, Peter
  • Nakov, Anton
  • Nuño, Galo
  • Pasten, Ernesto
  • Thaler, Dominik

Abstract

The recent surge in inflation has led to a significant increase in the frequency of price changes, making prices more flexible. Conventional models assume a constant price change frequency, but in state-dependent models the frequency varies with economic conditions. Price flexibility has an impact on the effectiveness of monetary policy. In high inflation periods, frequent price changes make monetary policy more effective in reducing inflation with less impact on economic activity. Therefore, monetary policy should be more aggressive during such periods to stabilise prices efficiently. This approach allows central banks to achieve a “soft landing” with less impact on activity. Overall, central banks should adjust their strategies based on the inflation environment to optimise economic outcomes. JEL Classification: E31, E32

Suggested Citation

  • Karadi, Peter & Nakov, Anton & Nuño, Galo & Pasten, Ernesto & Thaler, Dominik, 2025. "Why monetary policy should crack down harder during high inflation," Research Bulletin, European Central Bank, vol. 130.
    • Handle: RePEc:ecb:ecbrbu:2025:0130:
    Note: 1871516
    as

    Download full text from publisher

    File URL: https://www.ecb.europa.eu//press/research-publications/resbull/2025/html/ecb.rb250429~6f9636652d.en.html
    Download Restriction: no
    File URL: https://www.ecb.europa.eu//press/research-publications/resbull/2025/html/ecb.rb250429~6f9636652d.en.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    cost-push shocks; high inflation; Optimal monetary policy; Ss pricing;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbrbu:2025:0130:. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Official Publications (email available below). General contact details of provider: https://edirc.repec.org/data/emieude.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.