High and Volatile Inflation Begets a More Volatile Business Cycle

Andrés Blanco
Additional contact information
Andrés Blanco: https://www.atlantafed.org/who-we-are/people/research/economists/andres-blanco

Policy Hub, 2026, vol. 2026, issue 5, 10

Abstract: Following five years of inflation above the Federal Reserve's 2 percent target, a pressing question for policymakers is: what are the macroeconomic consequences of inflation remaining persistently elevated? Drawing on historical lessons from the 1970s and a new theoretical framework, this paper shows that elevated and persistent inflation makes the economy more vulnerable to costpush shocks. When inflation is already high, a cost-push shock generates larger and more persistent inflation and a deeper output contraction than it would in an environment of low and stable inflation. The implication: low and stable inflation is not just a goal; it is itself a macroeconomic stabilizer.

Keywords: inflation; frequency of price changes; monetary policy (search for similar items in EconPapers)
JEL-codes: I24 I28 J62 N32 (search for similar items in EconPapers)
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.atlantafed.org/-/media/Project/Atlanta ... e-business-cycle.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:a00068:103743

DOI: 10.29338/ph2026-05

Access Statistics for this article

More articles in Policy Hub from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Robert Sarwark ().