Search Results
Briefing
Detecting Inflation Instability
In a stable monetary policy regime, the share of relative price increases helps to explain monthly inflation fluctuations. We illustrate this regularity with U.S. data from January 1995 through February 2020, then we use it to evaluate whether the regime has remained stable during the pandemic period. From March 2021 to February 2022, the behavior of inflation and the share of relative price increases was inconsistent with the pre-pandemic regime. Recent data show some signs of a return to that regime.
Journal Article
Monetary policy and global equilibria in a production economy
In linear macroeconomic models, an active Taylor rule for monetary policy can guarantee a locally unique nonexplosive equilibrium. In a series of articles, Benhabib, Schmitt-Groh, and Uribe looked beyond the local dynamics and showed that active Taylor rules could interact with the zero bound on nominal interest rates to generate multiple equilibria, including a steady-state equilibrium with inflation below target. Recently, the persistence of low inflation and low nominal interest rates has brought attention to Benhabib, Schmitt-Groh, and Uribe's work in policy circles. We provide an ...
Briefing
How Seasonality in Inflation Variance Affects Estimates of Underlying Inflation
The Federal Reserve has a mandate to achieve price stability, which it interprets as inflation that averages 2 percent over time. Retrospectively, it is simple to determine how successful the Fed has been in achieving this goal. In real time, however, a key challenge for the Fed is inferring the current level of "underlying" inflation, as that involves filtering out the noise from volatile monthly inflation data. In this article, we show that there is a seasonal aspect to the volatility of PCE inflation that makes it desirable (and important) to filter differently depending on the month of ...
Journal Article
Inflation Targeting in a St. Louis Model of the 21st Century
Working Paper
The Relationship Between Inflation and the Distribution of Relative Price Changes
Monthly U.S. inflation from 1995 through 2019 is well explained by statistics summarizing the monthly distribution of relative price changes. We document this relationship and use it to evaluate the behavior of inflation during and after the COVID-19 pandemic. In earlier periods when inflation was not stable, the relationship between inflation and the distribution of relative price changes shifts, much like the Phillips curve. We use that shifting relationship to derive a measure of underlying inflation that complements existing measures used by central banks.
Working Paper
Payment Choice and the Future of Currency: Insights from Two Billion Retail Transactions
This paper uses transaction-level data from a large discount chain together with zip-code-level explanatory variables to learn about consumer payment choices across size of transaction, location, and time. With three years of data from thousands of stores across the country, we identify important economic and demographic effects; weekly, monthly, and seasonal cycles in payments, as well as time trends and significant state-level variation that is not accounted for by the explanatory variables. We use the estimated model to forecast how the mix of consumer payments will evolve and to forecast ...
Briefing
A Small Contribution to Measuring the Lags in Monetary Policy Transmission
From May 2022 to July 2023, holdings of small CDs have risen from virtually nothing to more than $900 billion. While this is a dramatic increase, it has come on the heels of a sharp increase in interest rates, and the increase in CDs did not begin until well after interest rates started rising. In this article, I provide some historical perspective for the recent increase in CDs and retail money market mutual fund (MMMF) balances. What is the typical lag between market interest rate increases and increases in CD and MMMF balances? Is the recent increase unusually large, or does history ...
Working Paper
Investigating Nonneutrality in a State-Dependent Pricing Model with Firm-Level Productivity Shocks
In recent years there has been an abundance of empirical work examining price setting behavior at the micro level. First generation models with price setting rigidities were generally at odds with much of the micro price data. A second generation of models, with fixed costs of price adjustment and idiosyncratic shocks, have attempted to rectify this shortcoming. Using a model that matches a large set of microeconomic facts we find significant nonneutrality. We decompose the nonneutrality and find that state-dependence plays an important part in the responses of output and inflation to a ...