257 posts on "Macroeconomics"
June 6, 2011
A Closer Look at the Recent Pickup in Inflation
Inflation has picked up in the last few months. Between June and November 2010, the twelve-month change in the seasonally adjusted consumer price index (CPI) was stable, at slightly above 1 percent, but it jumped to 3.1 percent as of last April. Higher food and energy prices have been an important factor behind this pickup in “headline” inflation. However, core inflation has also increased; the year-over-year core CPI (excluding volatile food and energy prices) moved from a record low of 0.6 percent in October 2010 to 1.3 percent in April.
May 31, 2011
Did Unconventional Policy Responses to the Crisis Work? Evidence from a Cross‑Country Analysis
The 2008-09 global recession produced a significant loss of output and a deflationary scare in many countries. The depth, scale, and duration of the crisis triggered monetary and fiscal policy actions that were “unconventional” in terms of their size and scope, leading to an ongoing debate over the role that these policy responses played in the stabilization process. How and to what extent were these policies effective? In this post, we examine cross-country experiences and find evidence consistent with the idea that the policies contributed to the stabilization process through their effect on expectations of output and inflation.
Posted at 10:00 am in Euro Area, Expectations, Inflation, Macroeconomics, Monetary Policy | Permalink
May 18, 2011
Will the Federal Reserve’s Asset Purchases Lead to Higher Inflation?
A common refrain among critics of the Federal Reserve’s large-scale asset purchases (“LSAPs”) of Treasury securities is that the Fed is simply printing money to purchase the assets, and that this money growth will lead to much higher inflation. Are those charges accurate? In this post, I explain that the Fed’s asset purchases do not necessarily lead to higher money growth, and that the Fed’s ability (since 2008) to pay interest on banks’ reserves provides a critical new tool to constrain future money growth. With this innovation, an increase in bank reserves no longer mechanically triggers a series of responses that could lead to excessive money growth and higher inflation.
May 16, 2011
Are Rising Commodity Prices Unanchoring Inflation Expectations?
The U.S. inflation outlook is the focus of considerable discussion in business and central banking circles. As shown in the chart below, headline inflation measured as a year-to-year percentage change declined over the first half of 2010, leveled off in the second half of the year, and has been rising recently—driven largely by higher commodity prices. An important question is whether this recent increase is likely to be transitory or the beginning of a more sustained rise in headline inflation. In this post, we examine data from the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters (SPF) and discuss how the survey’s unique features and rich information on inflation expectations can shed light on this question as well as offer insight into the inflation outlook that is not available from other survey instruments. While inflation has indeed increased recently, our analysis suggests that inflation expectations are not presently at risk of becoming “unanchored,” or showing a greater concern over higher future inflation.
May 4, 2011
How Much Will the Second Round of Large‑Scale Asset Purchases Affect Inflation and Unemployment?
With the federal funds rate at the zero lower bound, the Fed’s large-scale purchase of Treasury securities provides an alternative tool to boost the economy. In November 2010, the Federal Open Market Committee (FOMC) announced a second round of large-scale asset purchases (LSAP2) with the goal of accelerating the recovery. In this post, we analyze the impact of LSAP2 on the two variables that fall under the Fed’s dual mandate: inflation and unemployment. Our point estimates suggest that the effects will be moderate and delayed, although there is considerable uncertainty attached to these estimates.
Posted at 10:00 am in Exchange Rates, Fed Funds, Inflation, Macroeconomics, Monetary Policy, Treasury, Unemployment | Permalink
April 6, 2011
Temporary Layoffs during the Great Recession
In this post, I show that despite the depth of the Great Recession, U.S. employers did not use temporary layoffs much to cut costs. Just as they did during the previous two recessions, when firms laid workers off, they usually severed ties completely. This prevalence of permanent layoffs during the recession could slow the employment rebound over the coming months. It also raises questions about why the behavior of employers during recessions has changed.
March 23, 2011
How Much Will the Rise in Commodity Prices Reduce Discretionary Income?
Commodity prices have risen considerably since August 2010, raising concerns that higher commodity prices could reduce households’ discretionary income and slow the recovery. For example, as former Federal Reserve Board Vice Chairman Donald Kohn said in the Wall Street Journal last fall:
“… the surge in international commodity prices. If that persists it could hurt Americans’ disposable income, especially as it is reflected in higher gas and energy prices.”
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