Mathias Hoffmann, Emanuel Moench, Lora Pavlova, Guido Schultefrankenfeld, 03 August 2022

In 2022, consumer price inflation in the euro area has climbed to record highs. As a result, many households have increased their inflation expectations, thus increasing the risks of more persistent inflation in the future. Using the Bundesbank Online Panel Households as a laboratory, this column provides evidence that individuals who are shown ECB communication on the inflation outlook significantly reduce their inflation expectations. Furthermore, explaining the outlook verbally has a substantially larger effect than merely providing numerical projections. 

Pierre-Olivier Gourinchas, Ricardo Reis, 20 July 2022

Global real rates are stuck at a low level, and until recently policy rates everywhere were effectively zero. Can we use historical data to explain why this happened, and to predict whether we will be back at the ZLB when inflation falls? Pierre-Olivier Gourinchas and Ricardo Reis talk to Tim Phillips.

Maarten Verwey, Reuben Borg, Kristian Orsini, 18 July 2022

The shocks unleashed by Russia’s war on Ukraine are hitting the EU economy hard, setting it on a path of lower growth and higher inflation than expected in the previous European Commission forecast. Further upward pressures on energy prices, and even an outright cut in gas supply, represent concrete risks to the forecast. Against this backdrop, this column argues that EU Member States should implement the right policies to support vulnerable households while investing in measures to frontload the energy transition.

Jongrim Ha, M. Ayhan Kose, Franziska Ohnsorge, 12 July 2022

The global economy is experiencing a toxic mix of slowing growth and rising inflation, bringing echoes of the stagflation of the 1970s. This column discusses how the resolution of that episode required steep increases in interest rates that marked the beginning of a decade of debt crises in emerging market and developing economies. If current stagflationary pressures intensify, some of these economies would likely face severe challenges again in rolling over their debt due to elevated financial vulnerabilities and weakening growth fundamentals. 

Mike Wickens, 05 July 2022

The UK’s debt-to-GDP ratio was 40% in 2007. At the beginning of 2022 it was 95%. How can this be reduced, and what level of debt to GDP is sustainable? Evidence from 120 years of policymaking gives us some clues about what works -- and what doesn’t.

Download the free DP and read more about this research:
Wickens, M. 2022. 'How might the UK's Debt-GDP ratio be reduced? Evidence from the last 120 years'. CEPR

Marijn A. Bolhuis, Judd N. L. Cramer, Lawrence H. Summers, 22 June 2022

Housing inflation in the US before 1983 was measured in a way that made the Consumer Price Index (CPI) mechanically responsive to Fed policy, leading to artificially high peaks and fast declines in CPI inflation. To better contextualise the current run-up in inflation to a 40-year high, this column presents new historical series for CPI headline and core inflation that are more consistent with current practices and expenditure shares for the post-war period. Using these series, the authors find that current inflation levels are much closer to past inflation peaks than the official series would suggest. 

Lena Boneva, Gianluigi Ferrucci, Francesco Paolo Mongelli, 17 June 2022

While the implications of climate change for financial stability and prudential supervision are widely recognised, those for monetary policy have received less attention until recently. This column, the first in a two-part series, reviews the key mechanisms through which climate change influences monetary policy. Climate change impacts the objective, conduct, and transmission of monetary policy and could bear implications for the design of the monetary policy framework. To ensure price stability, central banks have a clear interest, in some cases an obligation, to incorporate climate change considerations into their policymaking.

Luca Fornaro, Federica Romei, 27 May 2022

Since the start of the pandemic, global demand for tradable goods relative to non-tradable services has been exceptionally high. This column argues that this unusual demand pattern can push the global economy into stagflation, driven by scarcity of tradable goods. Countries running trade deficits export high inflation abroad, while policies that boost production of tradable goods and current account surpluses act as a benign disinflationary force. Due to a free riding problem, national monetary authorities may fall into a coordination trap leading to excessively high unemployment. High energy prices exacerbate all these effects. 

Guido Porto, Bob Rijkers, 20 May 2022

This week António Guterres, secretary-general of the UN, warned that the war in Ukraine would tip tens of millions into food insecurity. Guido Porto and Bob Rijkers tell Tim Phillips about who suffers and how much from food price inflation.

Ricardo Reis, 13 May 2022

If you're going to drop lots of money from a helicopter, what will happen to the economy? When would it make a difference, and to who? Helicopter money is increasingly being taken seriously as policy. Ricardo Reis tells Tim Phillips whether helicopter money really can solve our economic problems.

Download the free DP and read more about this research:
Reis, R and Tenreyro, S. 2022. 'Helicopter money: what is it and what does it do?'. London, Centre for Economic Policy Research.

Guillaume Daudin, Violaine Faubert, 13 May 2022

The rise of global value chains has led to a greater use of input-output tables to study international linkages. This column analyses cost-push inflation using world input-output tables. In the light of the recent surge in commodity prices, it explores which countries are most vulnerable to energy cost-push inflation and documents the large exposure of Eastern and central European economies to a rise in Russian hydrocarbon prices. Input-output tables are used to document the heterogeneous reactions of consumer prices to exchange rate variations across countries, reflecting differences in foreign product content of consumption and intermediate products.

Stephan Haroutunian, Sebastian Hauptmeier, Nadine Leiner-Killinger, Philip Muggenthaler, 13 May 2022

The economic landscape has changed dramatically since the European fiscal rules were designed some 30 years ago. This column contributes to the debate on reform by proposing a two-tier fiscal framework combining an expenditure rule that accounts for the ECB’s inflation objective with a lower speed of adjustment under the Stability and Growth Pact’s debt rule. Counter-cyclicality may be improved by automatic modulation of adjustment requirements, creating fiscal space when domestic inflation is low and constraining more when inflation is above target. The link to the debt anchor ensures a gradual phasing-in of debt reduction in the aftermath of COVID-19.

Francesco D'Acunto, Ulrike Malmendier, Michael Weber, 07 May 2022

Inflation has surged to historic levels around the globe. Designing the correct policy responses requires a deep understanding of how consumers form and update their inflation expectations, and how expectations influence economic behaviour. This column summarises key findings in the literature on inflation expectations, particularly how they deviate from the full-information rational expectations paradigm. Household inflation expectations are typically biased upwards, systematically skewed, and correlated with social/demographic characteristics. Studying these heterogeneities and their impact on aggregate outcomes is a key challenge for policymakers going forward. 

Yunjong Eo, Luis Uzeda, Benjamin Wong, 29 April 2022

Supply chain disruptions and labour shortages coupled with demand-side pressures have seen goods inflation soaring since early 2021. This column shows that while goods inflation used to contribute to permanently higher headline inflation, such as during the Great Inflation of the 1970s, since the early 1990s it has become predominantly transitory. The current high goods inflation can therefore be expected to be somewhat short-lived. Nonetheless, the authors document that the upside risks to longer-term aggregate and sector-specific inflation remain greater than usual. 

Fabio Braggion, Felix von Meyerinck, Nic Schaub, 15 April 2022

Inflation has resurfaced following the COVID-19 pandemic and the war in Ukraine, leading to a lively discussion on how individual investors could protect the real value of their financial wealth against rising prices. This column uses a unique dataset to provide empirical evidence that individual investors in Germany in the 1920s bought less (sold more) stocks when facing higher local inflation. The effect was more pronounced for less sophisticated investors. The authors also find a positive relationship between local inflation and forgone returns following stock sales. These findings point to individual investors suffering from money illusion. 

Alex Domash, Lawrence H. Summers, 13 April 2022

As inflation accelerates in the US, the Federal Reserve will raise interest rates in the hope of achieving a soft landing for the economy. This column uses historical data on unemployment and inflation to evaluate the likelihood that the Fed can lower inflation without causing a recession. The authors find that low levels of unemployment and high inflation are both strong predictors of future recessions, and that overheating indicators today suggest a very high probability of recession over the next two years. The likelihood of the Fed achieving a soft landing in the economy appears low. 

Paul De Grauwe, Yuemei Ji, 02 April 2022

Trust impacts many aspects of economic life and plays some role in standard macroeconomic models. This column analyses the importance of trust in a more systematic way using a behavioural macroeconomic model. The authors find that large negative supply shocks lead to a bifurcation between good and bad trajectories of output, inflation, and trust. Initial conditions matter in determining which trajectory will be chosen. The model helps to understand and predict the experience of the 1970s with the supply shocks and the recent Covid supply shock.

Erhan Artuc, Guillermo Falcone, Guido Porto, Bob Rijkers, 01 April 2022

The conflict in Ukraine has led to a surge in food prices, particularly wheat and corn. This column uses a newly developed toolkit to analyse the welfare impacts of food price inflation on households in developing countries. Average household welfare decreases in 43 of 53 countries in the sample, with an average real income loss of -1.5%. This impact varies substantially both across and within countries, with poorer households suffering systematically larger welfare losses. Protracted price increases will have long-term consequences for prosperity in many of these countries, exacerbating issues of poverty and inequality.

Marijn A. Bolhuis, Judd N. L. Cramer, Lawrence H. Summers, 28 March 2022

Many believe that the current elevated inflation in the US will subside as a range of factors associated with bottlenecks in the goods sector are alleviated. This column argues that the way that residential services inflation is measured and the characteristics of the housing market kept inflation down in 2021 despite large increases in real-time private sector measures. These past increases ensure an uptick in recorded housing inflation in 2022. The authors project that that residential inflation will peak in late 2022, but it will remain elevated in 2023 and that this could make a substantial contribution to overall inflation.

Erik Feyen, Yusaku Kawashima, Raunak Mittal, 19 March 2022

Crypto-asset holdings and transaction volumes have grown rapidly around the world, and crypto assets are increasingly regarded as an emerging asset class. This column finds that transaction volumes across countries appear to be driven by globally relevant factors such as US longer-term inflation expectations, US real Treasury yields, and gold and crypto-asset prices, rather than recent country-level macroeconomic developments. Volumes also tend to be higher in countries with higher information and communications technology penetration and greater reliance on remittances.



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