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Disinflation Policies with a Flat Phillips Curve

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Abstract

Yesterday’s post analyzed the drivers of the surge in inflation over the course of 2021 through the lens of the New York Fed DSGE model. In today’s post, we use the model to study how alternative monetary policy strategies might contribute to bringing inflation back down to 2 percent. Our main finding is that there is no monetary silver bullet. Due to a flat Phillips curve—a well–documented feature of the economic environment of the last three decades—monetary policy can only achieve faster disinflation at a considerable cost in terms of forgone economic activity. This is true regardless of the systematic approach followed by the central bank in the model to pursue its objective.

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  • Marco Del Negro & Aidan Gleich & Shlok Goyal & Alissa Johnson & Andrea Tambalotti, 2022. "Disinflation Policies with a Flat Phillips Curve," Liberty Street Economics 20220302, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:93783
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    Keywords

    DSGE; inflation; macroeconomics; monetary policy;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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