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Discussion Paper
How Do Firms Adjust Prices in a High Inflation Environment?
How do firms set prices? What factors do they consider, and to what extent are cost increases passed through to prices? While these are important questions in general, they become even more salient during periods of high inflation. In this blog post, we highlight preliminary results from ongoing research on firms’ price-setting behavior, a joint project between researchers at the Federal Reserve Banks of Atlanta, Cleveland, and New York. We use a combination of open-ended interviews and a quantitative survey in our analysis. Firms reported that the strength of demand was the most important ...
Working Paper
Liquidity Premiums on Government Debt and the Fiscal Theory of the Price Level
We construct a dynamic general equilibrium model where agents use nominal government bonds as collateral in secured lending arrangements. If the collateral constraint binds, agents price in a liquidity premium on bonds that lowers the real rate on bonds. In equilibrium, the price level is determined according to the fiscal theory of the price level. However, the market value of government debt exceeds its fundamental value. We then examine the dynamic properties of the model and show that the market value of the government debt can fluctuate even though there are no changes to current or ...
Newsletter
Forecasting Inflation During the Pandemic: Who Got It Right?
The sudden rise in inflation that started in 2021 was the largest in 40 years for the United States. The rapidity, size, and persistence of this increase took most observers by surprise. In this article, we conduct a retrospective analysis and compare the accuracy of inflation projections made before, during, and after the Covid-19 pandemic by three groups of people: individual households, professional forecasters, and policymakers on the Federal Open Market Committee (FOMC) of the Federal Reserve System.