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Journal Article
High and Volatile Inflation Begets a More Volatile Business Cycle
Following five years of inflation above the Federal Reserve's 2 percent target, a pressing question for policymakers is: what are the macroeconomic consequences of inflation remaining persistently elevated? Drawing on historical lessons from the 1970s and a new theoretical framework, this paper shows that elevated and persistent inflation makes the economy more vulnerable to costpush shocks. When inflation is already high, a cost-push shock generates larger and more persistent inflation and a deeper output contraction than it would in an environment of low and stable inflation. The ...