Jean-Pierre Landau, 08 February 2021

The fiscal stimulus pushed by the new US administration – much larger that the remaining output gap – has recently triggered a new and fascinating debate on the risk of inflation. This column argues, however, that the focus on short-term imbalances may obscure the long-term risk of fiscal dominance. This points to the need for a new, revitalised approach to central bank independence which would aim less at solving the time-inconsistency problem (eliminating the incentive to cheat) and more on preserving central banks’ unconstrained ability to act and avoid fiscal dominance in the future.

Jesper Lindé, Mathias Trabandt, 12 November 2019

The alleged breakdown of the Phillips curve has left monetary policy researchers and central bankers wondering if we need to develop completely new models for price and wage determination. This column argues that a relatively small alteration of the standard New Keynesian model, combined with using the nonlinear instead of the linearised solution, is sufficient to resolve the two puzzles – the ‘missing deflation’ during the recession and the ‘missing inflation’ during the recovery – underlying the supposed breakdown.

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