U.S. inflation has become sustainably less than the 2% policy target in recent years.

Jonah Whanau

2019-08-03 09:28:00 Sat ET

U.S. inflation has become sustainably less than the 2% policy target in recent years. As Harvard macro economist Robert Barro indicates, U.S. inflation has remained low and stable since the federal funds rate peaked at 22% in the early-1980s. The Federal Reserve upholds the Taylor interest rate rule that the federal funds rate should increase by more than the next likely rise in inflation. This monetary policy rule accords with the U.S. dual mandate of price stability and maximum sustainable employment. In New Keynesian macroeconomic models, interest rate adjustments can cause real movements in inflation, employment, and the economic output gap due to monopolistic competition and sticky-price persistence.

Former IMF chief economist Olivier Blanchard and his MIT PhD student Jordi Gali show that solo price stabilization would be equivalent to attempting to stabilize both deviations of general prices and economic output gaps from the respective targets. Blanchard and Gali refer to this macroeconomic stabilization principle as the divine coincidence. Nevertheless, the divine coincidence may disappear due to real wage rigidities and financial market frictions. On balance, mainstream macroeconomic models cannot plausibly explain the recent great moderation of low inflation near 1.5%-2% despite gradual and consistent interest rate cycles.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More

AYA finbuzz podcast offers fresh insights into the latest stock market topics and economic trends for better stock investment decisions.

Daphne Basel

2019-09-30 07:33:00 Monday ET

AYA finbuzz podcast offers fresh insights into the latest stock market topics and economic trends for better stock investment decisions.

AYA Analytica finbuzz podcast channel on YouTube September 2019 In this podcast, we discuss several topical issues as of September 2019: (1) Former

+See More

Goldman Sachs follows the timeless business principles and best practices in financial market design and investment management.

Chanel Holden

2020-02-26 09:30:00 Wednesday ET

Goldman Sachs follows the timeless business principles and best practices in financial market design and investment management.

Goldman Sachs follows the timeless business principles and best practices in financial market design and investment management. William Cohan (2011) M

+See More

The Chinese administration delivers a written response to U.S. demands for trade reforms.

Olivia London

2018-11-25 12:37:00 Sunday ET

The Chinese administration delivers a written response to U.S. demands for trade reforms.

The Chinese administration delivers a written response to U.S. demands for trade reforms. This strategic move helps trigger more formal negotiations between

+See More

Management consultants can build sustainable trust-driven client relations through the accelerant curve of business value creation.

Monica McNeil

2020-11-17 08:27:00 Tuesday ET

Management consultants can build sustainable trust-driven client relations through the accelerant curve of business value creation.

Management consultants can build sustainable trust-driven client relations through the accelerant curve of business value creation. Alan Weiss (2016)

+See More

Apple enters a multi-year content partnership with Oprah Winfrey to provide new original online video and TV programs.

Daisy Harvey

2018-06-10 19:41:00 Sunday ET

Apple enters a multi-year content partnership with Oprah Winfrey to provide new original online video and TV programs.

Apple enters a multi-year content partnership with Oprah Winfrey to provide new original online video and TV programs in direct competition with Netflix, Am

+See More

Our proprietary alpha investment model outperforms most stock market indexes from 2017 to 2025.

James Campbell

2025-02-02 11:28:00 Sunday ET

Our proprietary alpha investment model outperforms most stock market indexes from 2017 to 2025.

Our proprietary alpha investment model outperforms most stock market indexes from 2017 to 2025. Our proprietary alpha investment model outperforms the ma

+See More