Francesco D'Acunto, Ulrike Malmendier, Michael Weber, 15 November 2019

Policymakers seek to manage inflation expectations, but we understand little about how households form and update their expectations of inflation. The column tests Lucas's conjecture that the price changes households observe, rather than all price changes, drive expectations. A measure of individual household consumption weighted by the frequency of purchase is a statistically and economically significant driver of households' expectations. This challenges the modelling assumptions that central bank policymakers currently make.

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.

Anthony Edo, Jacques Melitz, 10 November 2019

Economists mostly argue that the Great Inflation in renaissance Europe was caused by an inflow of silver. Historians counter that it was caused by population growth. The column uses long-run economic data to argue that the historians' position is credible for England's economy. On this evidence, both contributed equally to inflation during this period.

Francesco Corsello, Stefano Neri, Alex Tagliabracci, 05 November 2019

Concerns about the anchoring of long-term inflation expectations to the ECB Governing Council’s aim have re-emerged since early 2019. Using data from the ECB’s Survey of Professional Forecasters, this column argues that long-term inflation expectations have de-anchored from the ECB’s inflation objective. They have not returned to the levels that prevailed before the 2013-14 period of disinflation, and their distribution is still skewed towards lower inflation levels. Moreover, long-term expectations have become sensitive to short-term ones and to negative inflation surprises. 

Thomas Hasenzagl, Filippo Pellegrino, Lucrezia Reichlin, Giovanni Ricco, 16 October 2019

What is happening to inflation and output in the euro area? The ECB has apparently lost the ability to raise inflation and price expectations have been sliding since the last recession. Much of the policy debate has focused on the flattening of the Phillips curve. Yet, as this column shows, estimations of the joint output-inflation process point to a decline of both output potential and trend inflation as the most relevant elements of the puzzle. 

Philippe Andrade, Jordi Galí, Hervé Le Bihan, Julien Matheron, 01 October 2019

How to adjust to structurally lower real natural rates of interest is a challenging but inescapable issue for central bankers. Using simulation and US data, this column studies how changes in the steady-state natural interest rate affect the optimal inflation target. It finds that starting from pre-crisis values, a 1 percentage point decline in the natural rate should be accommodated by an increase in the optimal inflation target of about 0.9 to 1 percentage point. It also discusses alternatives to adjusting the target, such as non-conventional monetary policies. 

Rashad Ahmed, Joshua Aizenman, Yothin Jinjarak, 28 June 2019

Countries have significantly increased their public-sector borrowing since the Global Crisis. This column documents several potential fiscal dominance effects during 2000-17 under inflation targeting and non-inflation-targeting regimes. A higher ratio of public debt to GDP is associated with lower policy interest rates in advanced economies. In emerging economies under non-inflation-targeting regimes, composed mostly of exchange-rate targeters, the interest rate effect of higher public debt is non-linear and depends both on the ratio of foreign currency to local currency debt, and on the ratio of hard currency debt to GDP.

James Costain, Anton Nakov, 28 June 2019

Recent low inflation is motivating new research to better characterise how individual firms and workers set prices and wages. This column describes a new approach which emphasises that the costs of decision making may limit the precision of price and wage changes. As well as making better sense of price and wage changes in microeconomic data, this new approach also strikes a middle ground between two leading models of monetary policy transmission, improving our quantitative understanding of the short-run effects of monetary policy on output and the short-run trade-off between inflation and unemployment.

Tatsuyoshi Okimoto, 13 June 2019

Japan’s monetary policy has had to be unconventional in order to address the economic conditions the country has faced. This column assesses the Bank of Japan’s exchange-traded fund purchasing programme, which has been repeatedly expanded in recent years. The purchases have achieved some positive results, propping up stock prices but also increasing real output and inflation. But, given the increased risks the Bank faces as its purchases have grown, the time to unwind has come.

Michael Bordo, 07 June 2019

Growing international imbalances are widely understood to have led Nixon to end gold convertibility in 1971. This column argues that a key fundamental underlying these imbalances was the rising inflation in the US, in turn created by US macroeconomic policies. President Nixon blamed the rest of the world instead of correcting US monetary and fiscal policies. It also identifies similarities between the imbalances of the 1960s and 1970s and those of today, especially regarding fiscal policies and the use of tariff protection as a strategic tool.

Roger Farmer, Giovanni Nicolò, 20 May 2019

The economies of many countries are operating close to full capacity, but unemployment and inflation are both low. Using data from the US, UK and Canada, this column compares differences in the macroeconomic behaviour of real GDP, the inflation rate and the yields on three-month Treasury securities in the three countries. It shows that the Farmer monetary model, closed with a belief function, outperforms the New Keynesian model, closed with the New Keynesian Phillips curve. The data fit the multiple equilibria emphasised in the Farmer model well, rather than the mean-reverting processes assumed by the New Keynesian model. 

Pierpaolo Benigno, 26 April 2019

Cryptocurrencies have attracted the attention of consumers, policymakers and the media. This column investigates whether they can jeopardise the primary function of central banks, namely, controlling inflation and economic activity. Currency competition can succeed in calming inflation and preventing the sort of manipulation of interest rates and prices to which governments have historically been prone. But currency competition may also lead to government money losing the function of medium of exchange, which could be risky and lead government currency into further troubles. 

Jongrim Ha, M. Ayhan Kose, Franziska Ohnsorge, 11 April 2019

Emerging market and developing economies have achieved a remarkable decline in inflation since the early 1970s, supported by robust monetary policy frameworks, strengthening of global trade, financial integration, and the disruptions caused by the global crisis. The column argues that a continuation of low and stable inflation in these countries is not guaranteed. If this wave of structural and policy-related factors loses momentum, elevated inflation could re-emerge. Policymakers may find that maintaining low inflation is as difficult as achieving it.

Giuseppe Ferrero, Mario Pietrunti, Andrea Tiseno, 21 March 2019

Dealing with uncertainty about the state of the economy is one of the main challenges facing monetary policymakers. In recent years there has been an extensive debate on the value of some of the deep parameters driving the economy, such as the natural rate of interest and the slope of the Phillips curve, estimates of which are quite uncertain. This column argues that when facing uncertainty on the structural relationship among macroeconomic variables, central banks should adopt a pragmatic and data-dependent approach to adjusting their monetary policy stance. 

Marcin Bielecki, Michał Brzoza-Brzezina, Marcin Kolasa, 05 March 2019

Population ageing is likely to affect many areas of life, from pension system sustainability to housing markets. This column shows that monetary policy can be considered another victim. Low fertility rates and increasing life expectancy substantially lower the natural rate of interest. As a consequence, central banks are more likely to hit the lower bound constraint on the nominal interest rate and face long periods of low inflation, especially if they fail to account for the impact of demographic trends on the natural interest rate in real time.

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Submissions are sought on the following themes:
• Digital currencies, fintech, and technology
• Regulation, markets, and financial intermediation
• International economics
• Macroeconomics, monetary policy, macrofinance, monetary policy frameworks, and communication
• Inflation dynamics
• Policy lessons from the history of finance and central banking
The deadline for submissions is Saturday, February 2nd.
The meeting commences on Thursday, July 18 at the FRB New York, featuring presentations by Nellie Liang and Jeremy C. Stein, and John C. Williams.
The 31 contributed sessions take place on Friday and Saturday, July 19-20 at the Kellogg Center, SIPA, Columbia University. Contributed sessions are organized by BIS, FSB, IMF, SNB, FRB St. Louis, Bank of Israel, FRB Cleveland, ECB, Riksbank, FRB San Francisco, Norges Bank, Bank of Spain, Bank of Japan, Bank of Canada, Bank of Korea, OeNB, FRB Minneapolis, Bundesbank, Central Bank of Ireland, SAFE, CEPR, ABFER, and IBRN.

Christiane Nickel, Derry O'Brien, 20 November 2018

Just like other central banks, the ECB generally monitors a range of measures of underlying inflation to help distinguish noise from signal in headline inflation. This column describes measures of underlying inflation that are routinely used at the ECB for measuring euro area headline inflation and provides some insights on their interpretation. Each of the measures has merits and shortcomings and they should be taken together in arriving at a first-pass assessment of developments in headline inflation. At the same time, the measures need to be complemented by a more structural examination of their driving forces in order to better understand the inflation process.

Alex Cukierman, Thomas Lustenberger, 04 November 2018

Almost 60 years ago, John Muth introduced the idea that adaptive expectations are rational if they efficiently use all available information. However, individuals are never fully certain, even ex post, about the permanence of economic developments. Using Israeli data, this explores the implications of this residual uncertainty for market efficiency. The findings point to issues with conventional market efficiency tests where ‘permanent-transitory confusion’ is in effect. 

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