| July 2024 |
Abstract
We develop a simple quantitative New Keynesian model aimed at analyzing how the reaction of monetary policy contributed to the recent rise and fall in inflation. The model includes several shocks but features oil price shocks for two reasons: (i) energy prices have been among the central factors in discussions about the surge; (ii) we can use identified oil shocks along with monetary shocks to estimate and discipline the model. We then employ the estimated framework to recover shocks without targeting inflation. Overall the model accounts for roughly three fourths of the surge in PCE inflation. Both the oil shocks and the shocks to policy accommodation played important roles in the inflation rise. Moreover, the easing of oil prices and subsequent shift to policy tightening contributed to the decline. A nonmonetary demand shock (a composite of private demand and fiscal stimulus) also contributed to inflation starting in 2022.
Search article:
