The Long-Run Costs of Higher Inflation

RePEc Short ID: pde1396
ORCID iD: 0000-0002-4086-4626

DeLuca, Martin; L'Huillier, Jean-Paul

doi:10.26509/frbc-ec-202317

Journal Article

The Long-Run Costs of Higher Inflation

Abstract: This Economic Commentary provides an overview of several frictions and the channels through which they affect economic welfare under elevated trend inflation above 2 percent. These frictions, associated with financial transactions, price and wage stickiness, and cognitive limitations, suggest that inflation imposes significant costs on society. Higher inflation may lead to a steeper Phillips curve, a situation which increases the volatility of inflation and interest rates.

Keywords: inflation; financial frictions; Phillips curve;

https://doi.org/10.26509/frbc-ec-202317