Not All Inflation Is the Same: State-Dependent Transmission of Monetary Policy

Rami Najjar and Adam Shapiro

No 2025, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We show that the underlying source of inflation impacts financial market perceptions of the persistence of monetary policy tightening. Investors expect policy tightening to be more persistent inflation is driven by demand factors. During supply-driven episodes, however, investors perceive tightening as less persistent and less effective at producing a disinflation. These results point to a state-dependent financial market response to monetary policy: credibility, and therefore financial-market transmission, depends on what kind of inflation the central bank is perceived to be fighting.

Keywords: monetary transmission; inflation expectations; high frequency; taylor rule (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Pages: 29
Date: 2024-11-24
New Economics Papers: this item is included in nep-mac and nep-mon
Note: PDF date: November 18, 2025.
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DOI: 10.24148/wp2025-28

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