Publication:

The post-covid inflation episode

The recent inflation episode has been examined in an estimated NK-DSGE model with sticky wages and unemployement. The rise of US price inflation resulted from a combination of a sudden rise in 2020, the expansionary monetary policy in 2021 and price-push shocks in the quarters of a global rising on the cost of energy. The projections of the disinflation path indicate that if either prices or wages are further indexed to lagged inflation, wage inflation will be higher and the price disinflation will slow down. Also, a severe tightening of Fed's monetary policy will barely reduce inflation at the cost of higher unemployment.