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Working Paper
Shocks, Frictions, and Policy Regimes: Understanding Inflation after the COVID-19 Pandemic
We set- up a two-sector New Keynesian model with input-output linkages to study the persistently high inflation during the post-COVID-19 period. We include multiple shocks as well as several amplification channels of these shocks in a parsimonious model to quantify the relative importance of each factor. We calibrate the model to match the pre-COVID-19 data and alter parameters governing 1) the fiscal rule, 2) inflation feedback in the monetary policy rule, 3) elasticity of substitution among intermediary inputs in production, and 4) the size of a sectoral demand shift shock to explain the ...
Working Paper
Shocks, Frictions, and Policy Regimes: Understanding Inflation after the COVID-19 Pandemic
We set-up a two-sector New Keynesian model with input-output linkages and monetary fiscal policy interactions to study the post-COVID-19 inflation. We test alternative calibrations of the model based on the fit of aggregate inflation, using shock estimates obtained by fitting goods inflation. Our preferred model suggests that fiscal shocks not offset by monetary policy account for the initial inflation surge in the first half of 2021 while supply-side shocks have emerged as main drivers of inflation since then. Multiple factors (“supply-side disruption”, “expansionary policy”, and ...