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

Brent crude oil prices spike to $70-$75 per barrel after the Trump administration stops waiving economic sanctions on Iran.

Jacob Miramar

2019-05-13 12:38:00 Monday ET

Brent crude oil prices spike to $70-$75 per barrel after the Trump administration stops waiving economic sanctions on Iran.

Brent crude oil prices spike to $70-$75 per barrel after the Trump administration stops waiving economic sanctions on Iranian oil exports. U.S. State Secret

+See More

The Trump $1.5 trillion hefty tax cuts and $1 trillion infrastructure expenditures may speed up the Federal Reserve interest rate hike.

Joseph Corr

2018-03-15 07:41:00 Thursday ET

The Trump $1.5 trillion hefty tax cuts and $1 trillion infrastructure expenditures may speed up the Federal Reserve interest rate hike.

The Trump administration's $1.5 trillion hefty tax cuts and $1 trillion infrastructure expenditures may speed up the Federal Reserve interest rate hike

+See More

Apple pursues an early harvest strategy that focuses on extracting healthy profits from the Mac, iPhone, and iPad.

Monica McNeil

2017-05-01 09:45:00 Monday ET

Apple pursues an early harvest strategy that focuses on extracting healthy profits from the Mac, iPhone, and iPad.

Apple now pursues an early harvest strategy that focuses on extracting healthy profits from a relatively static market for the Mac, iPhone, and iPad, all of

+See More

In the modern monetary system, each CBDC helps anchor public trust in money in support of economic welfare, especially in a new cashless society.

Joseph Corr

2024-07-31 09:28:00 Wednesday ET

In the modern monetary system, each CBDC helps anchor public trust in money in support of economic welfare, especially in a new cashless society.

In the modern monetary system, each new CBDC helps anchor public trust in money in support of economic welfare, especially in a cashless society. In our

+See More

American China-specialists champion the key notion of *strategic engagement* with the Xi administration.

James Campbell

2018-12-11 10:34:06 Tuesday ET

American China-specialists champion the key notion of *strategic engagement* with the Xi administration.

Several eminent American China-specialists champion the key notion of *strategic engagement* with the Xi administration. From the Hoover Institution at Stan

+See More

E.U. antitrust regulators impose a fine on Qualcomm for advancing its exclusive microchip deal with Apple.

Fiona Sydney

2018-01-17 05:30:00 Wednesday ET

E.U. antitrust regulators impose a fine on Qualcomm for advancing its exclusive microchip deal with Apple.

European Union antitrust regulators impose a fine on Qualcomm for advancing its key exclusive microchip deal with Apple to block out rivals such as Intel an

+See More