Inflation at risk of falling again
In July 2018 core personal consumption expenditures (PCE) price inflation finally reached 2%, the FOMC’s target. But Adam Shapiro argues that this increase is due to acyclical factors and not to a strengthening economy. This implies that there is some downside risk that future inflation would fall below target again.
Has Inflation Sustainably Reached Target?
By: Adam Shapiro – Federal Reserve Bank of San Francisco
Dimmer global growth prospects thanks to trade wars
Adverse trade developments are a negative supply shock. Skillful monetary policy can help offset a negative demand shock, but can do little or nothing to offset a supply shock. Slower growth and higher prices are inevitable effects. The Fed understands that if it were to apply monetary stimulus in an effort to prolong the current expansion artificially (as Trump has pressured it to do), the result would be to fuel inflation.
A Trade War is No Reason to Ease Monetary Policy
By: Jeffrey Frankel – Harvard University
How to arrive at a decision
I model the policymaker as playing a dynamic game against a forward-looking private sector. My main result is that, under relatively weak conditions, the policymaker’s optimal response to the current state can be found by applying statistical regression methods to past macroeconomic data. Based on this result, I argue that macroeconomic policy evaluation intended to be of practical value should rely considerably less on putatively structural macroeconomic models and considerably more on regression-based approaches.
Practical Policy Evaluation
Author: Narayana R. Kocherlakota
From: University of Rochester
