Drivers of Inflation: The New York Fed DSGE Model’s Perspective

Marco Del Negro, Aidan Gleich, Shlok Goyal, Alissa Johnson and Andrea Tambalotti

No 20220301, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: After a sharp decline in the first few months of the COVID-19 pandemic, inflation rebounded in the second half of 2020 and surged through 2021. This post analyzes the drivers of these developments through the lens of the New York Fed DSGE model. Its main finding is that the recent rise in inflation is mostly accounted for by a large cost-push shock that occurred in the second quarter of 2021 and whose inflationary effects persist today. Based on the model’s reading of historical data, this shock is expected to fade gradually over the course of 2022, returning quarterly inflation to close to 2 percent only in mid-2023.

Keywords: inflation; DSGE; macroeconomics (search for similar items in EconPapers)
JEL-codes: E2 (search for similar items in EconPapers)
Date: 2022-03-01
New Economics Papers: this item is included in nep-ban, nep-dge, nep-mac and nep-mon
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