Disinflation Policies with a Flat Phillips Curve

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

No 20220302, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Yesterday’s post analyzed the drivers of the surge in inflation over the course of 2021 through the lens of the New York Fed DSGE model. In today’s post, we use the model to study how alternative monetary policy strategies might contribute to bringing inflation back down to 2 percent. Our main finding is that there is no monetary silver bullet. Due to a flat Phillips curve—a well–documented feature of the economic environment of the last three decades—monetary policy can only achieve faster disinflation at a considerable cost in terms of forgone economic activity. This is true regardless of the systematic approach followed by the central bank in the model to pursue its objective.

Keywords: DSGE; inflation; macroeconomics; monetary policy (search for similar items in EconPapers)
JEL-codes: E2 E52 (search for similar items in EconPapers)
Date: 2022-03-02
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-dge, nep-mac and nep-mon
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