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on Central Banking |
| By: | Grey Gordon; Julio L. Ortiz; Benjamin Silk |
| Abstract: | We examine the experience of conducting reviews of monetary policy frameworks in the major advanced foreign economies since the Federal Open Market Committee's 2019–20 review. We find that periodic reviews are becoming the norm and have often been motivated by similar developments and challenges as those facing the Federal Reserve. In some cases, reviews were opportunities to alter numerical inflation objectives or clarify how policymakers balance fostering price stability and supporting employment and activity. In addition, foreign reviews emphasized the need for policy flexibility in pursuit of mandates. They also affirmed the usefulness of central banks' existing policy toolkits, while noting some concerns and limitations. Some reviews offered recommendations to improve communications. |
| Keywords: | Monetary policy review; Monetary policy strategies; Monetary policy tools; Central bank communications; Foreign monetary policy |
| JEL: | E52 E58 F33 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-66 |
| By: | Paul Hubert; Rose Portier |
| Abstract: | This paper establishes the asymmetric transmission of monetary policy to nominal yields of the four largest euro area countries. We document that the effect of easing monetary surprises is stronger than the effect of monetary tightening. The asymmetry holds beyond the nonlinearities related to the economic or financial environment and does not stem from information effects. We provide evidence that this asymmetry is driven by signals about the future policy path. Decomposing euro area interest rates between common and country-specific components, we show that the common component, likely capturing expectations of future short-term rates, generates the differentiated effects, while risk premium signals amplify the asymmetry. Using textual analysis to extract policymakers’ signals about the future monetary policy space from press conferences, we find that central bank communication can affect this asymmetric transmission to yields. Our results suggest a key role for the signaling channel in determining long-term interest rates. |
| Keywords: | Term Structure, Asymmetric Effects, Central Bank Communication, Signaling, Long-Term Interest Rates |
| JEL: | E43 E52 E58 G12 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:999 |
| By: | Hess T. Chung; Callum J. Jones; Antoine Lepetit; Fernando M. Martin |
| Abstract: | This paper considers robust monetary policy strategies both in situations of low demand and low inflation and when economic developments pose a tradeoff between inflation and output stabilization. We proceed in two parts. First, our quantitative analysis suggests that asymmetric average inflation targeting can provide modest benefits over other inflation-targeting strategies when the risks associated with the effective lower bound remain significant. Second, motivated by the recent experience of persistent supply shocks and rapid increases in inflation, we describe the main qualitative features of optimal policy in circumstances when the objectives of stabilizing inflation and economic activity conflict. We find that monetary policy may allow inflation to depart from the target in response to certain supply shocks or in cases when sectoral dynamics are relevant, but that it should be ready to respond forcefully and expeditiously to large inflationary shocks or if inflation expectations are at risk of becoming unanchored. |
| Keywords: | Alternative monetary policy strategies; Monetary policy communication; Effective lower bound; Supply shocks; Sectoral dynamics; Inflation surges |
| JEL: | E31 E52 E58 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-72 |
| By: | Giacomo Mangiante; Pascal Meichtry |
| Abstract: | This paper investigates the distributional effects of conventional monetary policy and forward guidance. Using a structural VAR model, we estimate their impact on macroeconomic aggregates and consumption inequality in the United States. While aggregate real and financial variables respond similarly to both policy tools, their effects on consumption inequality diverge significantly. Conventional monetary policy shocks lead to countercyclical inequality, whereas forward guidance announcements result in a procyclical response, driven by heterogeneous reactions across the household spending distribution. We rationalize these contrasting outcomes both empirically and through a tractable New Keynesian model featuring household heterogeneity and government redistribution. In the model, a fiscal adjustment that differs in timing and magnitude induces a sharper decline in consumption among financially constrained households following conventional rate hikes but a more muted effect under forward guidance. These findings highlight the importance of accounting for the distributional consequences of different monetary policy tools and emphasize the critical role of fiscal policy in shaping inequality dynamics. |
| Keywords: | Household Heterogeneity, Forward Guidance, Inequality, Monetary Policy, Hand-to-Mouth, Fiscal Transfers |
| JEL: | D31 E21 E52 E58 E62 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:996 |
| By: | Domenech Palacios, Mar |
| Abstract: | This paper examines whether firm-specific cyclical and idiosyncratic risk profiles influence corporate bond spreads and the transmission of monetary policy. I extend the standard excess bond premium (EBP) framework of Gilchrist & Zakrajšek (2012) to allow investors’ required compensation for default risk to vary with firm-level risks. Incorporating these effects reveals that a significantly larger share of a monetary policy shock’s impact on credit spreads is driven by changes in default risk compensation (as opposed to the EBP). In particular, for firms with more cyclical risk, up to one-fourth of the additional spread widening following a contractionary monetary policy shock reflects higher expected default compensation, substantially more than implied by the traditional EBP. By contrast, firms with high idiosyncratic risk show no strong differential response to monetary policy shocks relative to other firms. JEL Classification: D22, E43, E44, E52, G12 |
| Keywords: | cyclicality, excess bond premium, monetary policy, risk, sentiment |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253118 |
| By: | Fukker, Gábor; Sydow, Matthias; Mimun, Anisa Tiza |
| Abstract: | This paper investigates the effects of monetary policy on banks and non-bank financial institutions (NBFIs), with particular attention to the role of financial stress. We use high-frequency identified monetary policy shocks and state-dependent local projections to capture non-linear responses across financial sectors. Drawing on aggregated balance sheet data, including total assets, debt securities, and loans, we find that monetary tightening leads to broad-based contractions in total assets and debt holdings, with particularly pronounced effects for banks and investment funds. Loan responses are more heterogeneous, but money market funds and pension funds exhibit notable declines in loan exposures, especially under high-stress conditions. Importantly, we find that financial stress significantly amplifies the contractionary effects of monetary policy across all sectors and asset classes. Our results highlight the differentiated roles and vulnerabilities of financial intermediaries in the transmission of monetary policy and underline the importance of financial conditions in determining its overall effectiveness. JEL Classification: E52, G23 |
| Keywords: | monetary policy identification, non-bank financial intermediaries, non-bank lending activities, state-dependent local projections |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253114 |
| By: | Vasilki Dimakopoulou; George Economides; Apostolis Philippopoulos |
| Abstract: | This paper investigates whether the new expenditure rule of the European Union (EU) can restore dynamic stability and determinacy with bounded public debt in an otherwise unstable economic environment. We build upon the standard New Keynesian dynamic general equilibrium model so as to compare our results to the well-known results of Leeper (1991, 2016) and, more generally, to the literature on the fiscal-monetary policy mix. We find that the EU's new fiscal rule, despite its intentions, works practically like active fiscal policy. Given this, it does not leave room for active monetary (interest rate) policy; instead, the central bank has to accommodate the active fiscal policy which means that the policy interest rate can react only weakly to inflation. This will undermine the ECB's key mandate. |
| Keywords: | fiscal rules, macroeconomic policy assignment |
| JEL: | E62 E63 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12139 |
| By: | Brent Bundick; Isabel Cairó; Nicolas Petrosky-Nadeau |
| Abstract: | This paper reviews recent academic studies to assess the implications of adopting a shortfalls, rather than a deviations, approach to pursuing maximum employment. Model-based simulations from these studies suggest three main findings. First, shortfalls rules generate inflationary pressure relative to deviations rules, which offsets downward pressure on inflation stemming from the presence of the effective lower bound. Second, since monetary policy leans against these inflationary pressures, a shortfalls rule implies a limited effect on average outcomes in the labor market. Finally, studies suggest that monetary policy can offset higher-than-desired average inflation under a shortfalls rule by leaning more strongly against deviations of inflation from the 2 percent objective, thereby keeping longer-term inflation expectations well anchored. |
| Keywords: | Asymmetric monetary policy strategies; Maximum employment; Effective lower bound |
| JEL: | E32 E52 E58 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-68 |
| By: | François Gourio; Benjamin K. Johannsen; J. David López-Salido |
| Abstract: | In this paper, we describe the Federal Reserve’s 2019–20 review of its monetary policy framework. First, we discuss the historical background of and motivation for the review. We then summarize the structure of the 2019–20 review, which included Fed Listens events, a flagship research conference, a series of staff analyses, and related Federal Open Market Committee (FOMC) deliberations. Finally, we present the main outcomes of the review, with particular attention paid to changes to the FOMC’s Statement on Longer Run Goals and Monetary Policy Strategy. |
| Keywords: | Federal Reserve; Framework review; Consensus statement; Inflation targeting; Effective lower bound |
| JEL: | E52 E58 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-65 |
| By: | Mundle, Sudipto (Centre for Development Studies); Mehta, Madhur (National Institute of Public Finance and Policy) |
| Abstract: | This article reviews the conduct of monetary policy in India during periods of slow growth in the first quarter of the 21st century. Using standard univariate filtering techniques, the article first identifies periods of slow growth, i.e., periods of negative output gap. It then uses the inflation rate and other supporting indicators to determine whether these periods were demand or supply constrained. The article then reviews the conduct of monetary policy during each of these episodes. An important takeaway is that monetary policy in the Indian context is very complex. Taylor type rules or even rules linking monetary policy stance to binding demand or supply constraints are by themselves inadequate for the conduct of monetary policy. They need to be combined with discretion and judgements based on comprehensive, detailed assessments of economic conditions. The article also reviews time lags and effectiveness in the transmission of monetary policy during both the Multiple Indicator Regime and the Inflation Targeting regime, particularly with reference to the interest rate channel. We find that transmission occurs with a time lag of 2-3 quarters, however it remains incomplete. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:npf:wpaper:25/437 |
| By: | Anna Lipinska; Enrique Martínez García; Felipe Schwartzman |
| Abstract: | This paper examines the drivers of the 2020-23 inflation surge, with an emphasis on the similarities and differences across countries, as well as the role that monetary policy frameworks might have played in shaping central banks' responses. The inflation surge in the U.S. and abroad was set in motion by two global events: the COVID-19 pandemic and Russia's invasion of Ukraine. Pandemic-related supply disruptions, a rotation of consumer spending toward goods, and commodity price increases exacerbated by Russia's invasion of Ukraine resulted in unusually large relative price increases, which required time to be absorbed. A simple Phillips curve framework suggests that the inflation surge was mainly driven by "cost push" factors, such as supply shortages and relative price shifts. Tight labor markets contributed to the persistence of above-target inflation. Despite differences in mandates of the monetary policy frameworks, central banks around the world responded similarly to recent global events. |
| Keywords: | International comparison; Inflation; Global shortages; Aggregate demand; Aggregate supply; Commodity prices; Phillips curve; Inflation expectations; Monetary policy |
| JEL: | E31 E52 E58 F33 F40 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-71 |
| By: | Michael D. Bauer; Travis J. Berge; Giuseppe Fiori; Francesca Loria; Molin Zhong |
| Abstract: | This paper discusses the measurement, assessment, and communication of risks and uncertainty that are relevant for monetary policy. It provides a taxonomy of policy-relevant uncertainty related to the state and the structure of the economy, and the formation of expectations. A wide range of tools is available to assess and quantify uncertainty and the balance of risks. Qualitative assessments of uncertainty—in policy statements, minutes, and speeches—are the main tools to communicate uncertainty and the balance of risks across major central banks. However, the use of quantitative tools for such communications—including scenario analysis—is evolving, and so far no clear consensus has emerged for best practices. |
| Keywords: | Macroeconomic uncertainty; Monetary policy; Central bank communication |
| JEL: | E50 E58 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-73 |
| By: | Jouvanceau, Valentin; Darracq Pariès, Matthieu; Dieppe, Alistair; Kockerols, Thore |
| Abstract: | This paper examines the macroeconomic impact of substantial tariffs imposed by the second Trump administration on imports from China and the euro area and their transmission through direct and indirect channels. Using the ECB-Global 3.0 semi-structural model, we show that tariffs raise US import prices and lead to tighter US monetary policy, with the managed float of the renminbi partly offsetting adverse effects in China, while appreciation of the dollar undermines US export competitiveness. In the euro area, euro depreciation provides limited output support but intensifies imported inflation and triggers additional policy tightening. We assess the sensitivity of these results to key assumptions, such as the global amplification of inflation via dominant US dollar invoicing, partial trade diversion, and alternative monetary policy frameworks that attenuate monetary tightening and output contraction. Quantitative assessments of tariffs enacted up to 26 May 2025 and of an escalation scenario indicate significant global output losses and heightened inflationary pressures, requiring widespread policy rate increases. Further escalation of the trade conflict magnifies these effects. These findings quantify the economic cost of tariff related trade disputes and highlight the challenges central banks face in navigating the trade off between price stability and growth. JEL Classification: F12, F41, F42 |
| Keywords: | dominant-currency pricing, open-economy, semi-structural model, tariffs |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253117 |
| By: | Vaishali Garga; Edward P. Herbst; Alisdair McKay; Giovanni Nicolo; Matthias Paustian |
| Abstract: | We review the design and communication of monetary policy strategies that take into account risks and uncertainty. A key element in a robust monetary strategy is the concept of risk management, which is the weighing of key risks when setting policy. When risks to the outlook are balanced, the baseline outlook may be sufficient to guide policy decisions. However, risk-management considerations become important when risks are asymmetric. We discuss how robust simple interest rate rules and optimal control policy can incorporate risk-management considerations into the design of a monetary policy strategy. Alternative scenarios can illustrate salient risks and how monetary policy might respond if those risks were to materialize. However, using alternative scenarios in policy deliberations and communications requires important implementation choices. |
| Keywords: | Uncertainty; Risk management; Robust monetary policy strategies; Scenario analysis; Monetary policy communication |
| JEL: | E31 E32 E52 E58 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-74 |
| By: | Angelini, Elena; Bokan, Nikola; Ciccarelli, Matteo; Lalik, Magdalena; Zimic, Srečko |
| Abstract: | This paper introduces the European Central Bank’s Multi Country model (ECB-MC), a coherent macroeconomic framework designed to support economic forecasting and policy analysis within the Eurosystem. The ECB-MC captures the economic dynamics of the five major economies in the euro area – Germany, France, Italy, Spain, and the Netherlands – which account for more than 80 percent of the euro area total GDP. By incorporating detailed structural features and data-driven insights, the model provides the main reference for the ECB’s staff macroeconomic projections, acting as a disciplined tool for forecasting, enabling scenario, risk and sensitivity analyses, and giving a framework to understand the transmission channels of various economic shocks. The paper offers a detailed account of the structure, the estimation and the model properties, and provides a primer on the potential uses of the ECB-MC in the Eurosystem macroeconomic projections. JEL Classification: C3, C5, E5, E6 |
| Keywords: | euro area countries, forecasting, monetary policy, semi-structural model |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253119 |
| By: | Klodiana Istrefi; Florens Odendahl; Giulia Sestieri |
| Abstract: | We track how markets reacted to over 5, 000 communication events by Governing Council members. We find that communication between monetary policy meetings often moves markets as much as formal ECB decisions, and helps identify how monetary policy affects interest rate expectations, stock markets, inflation, and unemployment in the euro area. <p> Nous suivons la manière dont les marchés ont réagi à plus de 5 000 événements de communication des membres du Conseil des gouverneurs. Nous constatons que la communication entre les réunions de politique monétaire fait autant réagir les marchés que les décisions formelles de la BCE et contribue à identifier la manière dont la politique monétaire influe sur les anticipations de taux d’intérêt, les marchés d’actions, l’inflation et le chômage dans la zone euro. |
| Date: | 2025–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:411 |
| By: | Rochelle M. Edge; Dan Li |
| Abstract: | This paper proposes an approach to enhance the Federal Reserve's readiness to undertake market-functioning asset purchases during Treasury market disruptions. It notes that by tilting the SOMA Treasury portfolio toward bills rather than maintaining a maturity structure proportionate to that of outstanding Treasury debt—often viewed as the most neutral portfolio—the Fed can create a larger volume of reinvestments each month that can serve as a “war chest” for undertaking market-functioning asset purchases. This structure of the SOMA Treasury portfolio enables market-functioning asset purchases to be made without expanding the balance sheet or increasing reserves. This avoids the need for close monitoring of reserves when asset purchases are eventually unwound, while also allowing for a clearer differentiation between asset purchases undertaken to support market functioning and asset purchases undertaken to ease financial conditions. Under reasonable assumptions, bills portfolio shares r |
| Keywords: | Bills-tilted portfolio; Financial stability; Central bank balance sheet; Treasury market functioning; Soma portfolio composition; Market-functioning asset purchases |
| JEL: | E44 E52 E58 G01 G12 G18 H63 |
| Date: | 2025–09–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-77 |
| By: | Mikayel Sukiasyan |
| Abstract: | What is the best macroprudential regulation when households differ in their exposure to profits from the financial sector? To answer the question, I study a real business cycle model with household heterogeneity and market incompleteness. In the model, shocks are amplified in states with high leverage, leading to lower investment. I consider the problem of a Ramsey planner who can finance transfers with a distortive tax on labor and levy taxes on the balance sheet components of experts. I show that the optimal tax on capital purchases is zero and the optimal policy relies mostly on a tax on deposit issuance. The latter redistributes between agents by affecting the equilibrium rate on deposits. The welfare gains from optimal policy are due to both redistribution and insurance and are larger the more unequal the initial distribution is. A simple tax rule that targets a level of leverage can achieve most of the welfare gains from optimal policy. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.10933 |
| By: | Francois-Michel Boire; Thibaut Duprey; Alexander Ueberfeldt |
| Abstract: | This paper studies how financial shocks shape the distribution of output growth by introducing a quantile-augmented vector autoregression (QAVAR), which integrates quantile regressions into a structural VAR framework. The QAVAR preserves standard shock identification while delivering flexible, nonparametric forecasts of conditional moments and tail risk measures for gross domestic product (GDP). Applying the model to financial conditions and credit spread shocks, we find that adverse financial shocks worsen the downside risk to GDP growth significantly, while the median and upper percentiles respond more moderately. This underscores the importance of nonlinearities and heterogeneous tail dynamics in assessing macro-financial risks. |
| Keywords: | Central bank research; Econometric and statistical methods; Financial markets; Financial stability; Monetary and financial indicators |
| JEL: | C32 C53 E32 E44 G01 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-25 |
| By: | Yosuke Fukunishi (Graduate School of Economics, The University of Tokyo); Haorong Qiu (Graduate School of Economics, The University of Tokyo); Akihiko Takahashi (Graduate School of Economics, The University of Tokyo); Fan Ye (Graduate School of Economics, The University of Tokyo) |
| Abstract: | This study introduces a novel generative modeling framework for simulating the term structure of interest rates. In recent years, generative models have achieved significant progress in image generation and are increasingly being applied to finance. To the best of our knowledge, this is the first study to apply a generative model—specifically, a diffusion model—to the term structure of interest rates. Furthermore, we extend the framework to incorporate conditional generation mechanisms and v-parameterization. The training dataset consists of spot yield curves constructed from daily overnight index swap (OIS) rates using cubic Hermite splines. As base conditioning variables, we use short-term interest rates and changes in consumer price indexes (CPIs). Empirical analysis covering the period from 2015 to 2025 demonstrates that our model successfully reproduces the level and shape of yield curves corresponding to historical macroeconomic conditions and short-term interest rate environments. Additionally, when incorporating further conditioning variables related to quantitative easing policies, monetary base, current account balances, and nominal gross domestic product (GDP), we find that the inclusion of quantitative easing indicator notably enhances the model’s output relative to the base conditioning case. This suggests improved robustness and representational capacity under expanded conditioning. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cfi:fseres:cf604 |
| By: | John H. Cochrane |
| Abstract: | Inflation surged in 2021-2023 from a classic fiscal shock: money and debt that financed huge spending, without a plan for repayment. Neither money nor supply shocks offer a coherent alternative explanation. Inflation eased, with no recession, once the fiscal shock was over. Higher interest rates could have brought inflation down earlier, but could not have stopped it. Going forward, higher interest rates will raise debt service costs, and thus perversely raise inflation unless fiscal policy can tighten. High debt and structural deficits also mean that the US may lose the fiscal space to borrow in the next crisis. |
| JEL: | E4 E40 E50 H6 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34257 |
| By: | Anna Florio; Daniele Siena; Riccardo Zago |
| Abstract: | This paper studies how participation and position in Global Value Chains (GVCs) affect the slope of the Phillips Curve (PC) and, consequently, the ability of monetary policy to control inflation. Using data from the European Monetary Union (EMU) and value added measures of GVCs, we show that, beyond the role of trade openness, higher participation leads to a flatter PC. This evidence is consistent with the theoretical literature emphasising how globalisation can reduce the sensitivity of prices to unemployment due to stronger strategic complementarities, to higher market power and to imperfect exchange rate pass through. On the other hand, the role of GVC position is not statistically significant. |
| Keywords: | Monetary Policy, Global Value Chains, Phillips Curve, Price Stickiness, Variable Markups |
| JEL: | E32 F41 F62 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:970 |
| By: | Julius Mattern; Christoph Meyer |
| Abstract: | As modern economies increasingly adopt digital and instant payments, ensuring the resilience of payment systems and maintaining public trust have become more critical. This paper extends the network and clustering approach of Glowka et al. (2025) to identify critical participants in real-time gross settlement (RTGS) systems - those whose failure could disrupt system continuity. Our extension incorporates three key dimensions: payment type (interbank vs. customer), intrayear temporal frequency, and transaction view (value vs. volume). With these dimensions, we derive an extensive set of granular criticality scenarios and weight each scenario result by its economic activity to reflect its operational relevance. Applying this method to transaction data from SIC, Switzerland's RTGS system, we find that, beyond large international banks, mid-sized domestic banks and, occasionally, financial market infrastructures also play critical roles, especially during periods of heightened economic activity and night-time settlement hours. These criticality results are consistent, although some participants feature more prominently in the volume-based view. Our findings provide system operators and regulators with complementary tools to meet the Principles for Financial Market Infrastructures (PFMI), enabling context-specific assessment of criticality in RTGS systems and informing realistic stress test scenarios amid a rapidly evolving payment landscape. |
| Keywords: | Payment system, Systemic risk, Settlement, Central bank, Customer payments |
| JEL: | E42 D62 E44 E58 G21 J33 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2025-14 |
| By: | Ekaterina V. Peneva; Jeremy B. Rudd; Daniel Villar Vallenas |
| Abstract: | This paper examines the Board staff's inflation forecast misses over the years following the COVID-19 outbreak, focusing on a timeline of what staff members knew when and lessons learned along the way. The staff significantly underestimated both the size and persistence of the inflationary surge that followed the reopening of the U.S. economy. As a result, staff members made various changes to their forecasting procedures, including using new types of data to inform their assessment of supply-demand imbalances in product and labor markets and to guide their judgmental forecast. Throughout, an important difficulty was the lack of similar historical episodes upon which to base a quantitative analysis. Over time, the innovations helped improve the staff's ability to understand and forecast inflation during this period. However, considerable uncertainty remains about the quantitative contributions of the various drivers of the pandemic-period inflation as well as the applicability of the lessons from this episode for forecasting. |
| Keywords: | Inflation forecasting; Inflation dynamics; Phillips curve; covid-19 pandemic |
| JEL: | E31 E37 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-69 |