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The Dynamics of Large Inflation Surges

Author

Listed:
  • Andrés Blanco
  • Pablo Ottonello
  • Tereza Ranosova

Abstract

We empirically characterize episodes of large inflation surges that have been observed worldwide in the last three decades. We document four facts. (1) Inflation following surges tends to be persistent, with the duration of disinflation exceeding that of the initial inflation increase. (2) Surges are initially unexpected but followed by a gradual catch-up of average short-term expectations with realized inflation. (3) Long-term inflation expectations tend to exhibit mild increases that persist throughout disinflation. (4) Policy responses are characterized by hikes in nominal interest rates but no tightening of real rates or fiscal balances. Our findings highlight the challenges monetary authorities face in avoiding persistent inflation dynamics following large inflation surges.

Suggested Citation

  • Andrés Blanco & Pablo Ottonello & Tereza Ranosova, 2022. "The Dynamics of Large Inflation Surges," NBER Working Papers 30555, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30555
    Note: EFG IFM ME
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    Cited by:

    1. Speck, Christian, 2023. "Pricing the Bund term structure with linear regressions – without an observable short rate," Discussion Papers 08/2023, Deutsche Bundesbank.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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