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Inflation: Updating Approaches Using Lessons from Recent History

Paper Session

Saturday, Jan. 6, 2024 10:15 AM - 12:15 PM (CST)

Marriott Rivercenter, Conference Room 21
Hosted By: Central Bank Research Association
  • Chair: Linda Goldberg, Federal Reserve Bank of New York, NBER, CEPR, CEBRA

It’s Baaack: The Surge in Inflation in the 2020s and the Return of the Non-Linear Phillips Curve

Pierpaolo Benigno
University of Bern
Gauti B. Eggertsson
Brown University


This paper proposes a non-linear New Keynesian Phillips curve (Inv-L NK Phillips Curve) to explain the surge of inflation in the 2020s. Economic slack is measured as firms' job vacancies over the number of unemployed workers. After showing empirical evidence of statistically significant nonlinearities, we propose a New Keynesian model with search and matching frictions, complemented by a form of wage rigidity, in the spirit of Phillips (1958), that generates strong nonlinearities. Policy implications include the thesis that appropriate monetary policy can bring inflation down without a significant recession and that the recent inflationary surge was mostly generated by a labor shortage -- i.e. an exceptionally tight labor market.

Indirect Consumer Inflation Expectations: Theory and Evidence

Ina Hajdini
Federal Reserve Bank of Cleveland


Surveys often measure consumers’ inflation expectations by asking directly about prices in general or overall inflation, concepts that may not be well-defined for some individuals. In this Commentary, we propose a new, indirect way of measuring consumer inflation expectations: Given consumers’ expectations about developments in prices of goods and services during the next 12 months, we ask them how their incomes would have to change to make them equally well-off relative to their current situation such that they could buy the same amount of goods and services as they can today. Using a massive number of survey responses at a high frequency, we show that this measure of indirect consumer inflation expectations has risen sharply since early 2021. Higher inflation experiences correlate with higher indirect consumer inflation expectations across US cities and around the world.

The Role of Wages in Trend Inflation: Back to the 1980s?

Michael T. Kiley
Federal Reserve Board


This paper examines whether the measurement of trend inflation can be improved by using wage data in a dynamic factor model of disaggregated prices and wages for the United States. The model features time-varying coefficients and stochastic volatility. An estimate of trend inflation is a time-varying distributed lag of prices and wages, where the weight on a series depends on its time-varying volatility, persistence, and comovement with other series. The results show that wages inform estimates of trend inflation. The weight on wages was highest around 1980, drifted down through the 2000s, and returned to its 1980s value by 2022.

Martin Almuzara
Federal Reserve Bank of New York
Alexander Wolman
Federal Reserve Bank of Richmond
Stephanie Schmitt-Grohé
Columbia University, CEPR and NBER
JEL Classifications
  • E3 - Prices, Business Fluctuations, and Cycles