Post by account_disabled on Feb 24, 2024 18:51:36 GMT -10
Controlling inflation will take longer than most people think, but controlling it does not necessarily mean much higher unemployment, and a premature easing of monetary policy could be dangerous. Those are the main conclusions of a new IMF working paper released Friday, which examined the lessons of more than 100 different inflationary shocks in 56 countries since the 1970s. Given its obvious timeliness, we're surprised the document hasn't already caused more of a stir, but Alphaville suspects it will provide ammunition to many central bank hawks at an interesting time for monetary policy.within five years, and that even in these “successful” cases, resolving inflation took, on average, more than three years.
Success rates were lower and resolution times longer for episodes induced by terms-of-trade shocks during the 1973-79 oil crises. Most of the unresolved episodes involved “premature Job Function Email Database celebrations,” in which inflation initially declined, then stabilized at a high level or accelerated again. Countries that resolved inflation had tighter monetary policy that was maintained more consistently over time, lower nominal wage growth, and lower currency depreciation, compared to unresolved cases. Successful disinflations were associated with short-term output losses, but not with larger output, employment, or real wage losses over a five-year horizon, potentially indicating the value of policy credibility and macroeconomic stability.
These are the summary conclusions of seven “stylized facts” that IMF economists drew from their work with data. You can read the full article here, but here are our quick summaries. Fact 1 Inflation is persistent, especially after terms of trade shocks It's easy to think that inflationary shocks caused by a sudden explosion in energy or food prices will dissipate once the root cause (embargoes, wars, bad weather, etc.) fades. But inflation only returned to pre-shock levels after a year in 12 of the 111 inflationary episodes the IMF examined, and in most of those cases it only occurred because of a massive economic shock like the 2007-08 financial crisis. or the Asian crisis. financial crisis.
Success rates were lower and resolution times longer for episodes induced by terms-of-trade shocks during the 1973-79 oil crises. Most of the unresolved episodes involved “premature Job Function Email Database celebrations,” in which inflation initially declined, then stabilized at a high level or accelerated again. Countries that resolved inflation had tighter monetary policy that was maintained more consistently over time, lower nominal wage growth, and lower currency depreciation, compared to unresolved cases. Successful disinflations were associated with short-term output losses, but not with larger output, employment, or real wage losses over a five-year horizon, potentially indicating the value of policy credibility and macroeconomic stability.
These are the summary conclusions of seven “stylized facts” that IMF economists drew from their work with data. You can read the full article here, but here are our quick summaries. Fact 1 Inflation is persistent, especially after terms of trade shocks It's easy to think that inflationary shocks caused by a sudden explosion in energy or food prices will dissipate once the root cause (embargoes, wars, bad weather, etc.) fades. But inflation only returned to pre-shock levels after a year in 12 of the 111 inflationary episodes the IMF examined, and in most of those cases it only occurred because of a massive economic shock like the 2007-08 financial crisis. or the Asian crisis. financial crisis.