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The quasi-inflation of 2021–2022: a case of bad analysis and worse response

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  • James K. Galbraith

Abstract

The theoretical construct of pure inflation is of no use in understanding the price events of 2021 and 2022 in the United States. By extension, the conventional tools of the Phillips Curve, NAIRU, potential output and money–supply growth are equally useless. By further extension, the ‘anti-inflation’ policies of the Federal Reserve have acted on asset markets (which are not part of theoretical inflation) while taking credit for the end to a price process in produced goods that was transitory in any event. The Federal Reserve is now stuck in a posture guaranteed to destabilize economic activity sooner or later, while the economy remains vulnerable to additional potential price shocks emanating from the same sources already seen, including real resources, supply chains, wars, pandemics and the policies of the Federal Reserve itself. These can be dealt with, if at all, only by policies in each specific area.

Suggested Citation

  • James K. Galbraith, 2023. "The quasi-inflation of 2021–2022: a case of bad analysis and worse response," Review of Keynesian Economics, Edward Elgar Publishing, vol. 11(2), pages 172-182, April.
    • Handle: RePEc:elg:rokejn:v:11:y:2023:i:2:p172-182
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    Cited by:

    1. Pianta, Mario, 2023. "Inflation and distributive conflicts," MPRA Paper 119345, University Library of Munich, Germany.

    More about this item

    Keywords

    inflation; prices; costs; Phillips Curve; NAIRU; output gap;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • 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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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