The Long-Run Costs of Higher Inflation

Martin DeLuca and Jean-Paul L'Huillier

Economic Commentary, 2023, vol. 2023, issue 17

Abstract: This Economic Commentary provides an overview of several frictions and the channels through which they affect economic welfare under elevated trend inflation above 2 percent. These frictions, associated with financial transactions, price and wage stickiness, and cognitive limitations, suggest that inflation imposes significant costs on society. Higher inflation may lead to a steeper Phillips curve, a situation which increases the volatility of inflation and interest rates.

Keywords: inflation; financial frictions; Phillips curve (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcec:97161

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DOI: 10.26509/frbc-ec-202317

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