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Comments on “Managing Disinflations” by Stephen G. Cecchetti, Michael E. Feroli, Peter Hooper, Frederic S. Mishkin, and Kermit L. Schoenholtz with Matthew Luzzetti and Justin Weidner

In the time I have, I will comment on three aspects of the paper: the empirical estimation of the Phillips curve, the role of inflation expectations, and the lessons for policymakers operating in an uncertain environment. The views I present will be my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee.

Discussion Paper
How Does Zombie Credit Affect Inflation? Lessons from Europe

Even after the unprecedented stimulus by central banks in Europe following the global financial crisis, Europe’s economic growth and inflation have remained depressed, consistently undershooting projections. In a striking resemblance to Japan’s “lost decades,” the European economy has been recently characterized by persistently low interest rates and the provision of cheap bank credit to impaired firms, or “zombie credit.” In this post, based on a recent staff report, we propose a “zombie credit channel” that links the rise of zombie credit to dis-inflationary pressures.
Liberty Street Economics , Paper 20201222

Bullard Discusses Disinflation, Rate Increases and Economic Resilience on CNBC

During an appearance on CNBC, St. Louis Fed President Jim Bullard discussed disinflation, the federal funds rate and the resilience of the U.S. economy. To help curb inflation, Bullard said his target federal funds rate would be 5 3/8%. The target range for the rate currently is 4.5% to 4.75%.“I think we can get disinflation with a strong labor market, but we'll have to be credible in our policy and we'll have to react to the data as it comes up,” Bullard said.Bullard said the U.S. economy might be more resilient than financial markets thought six to eight weeks ago, and he expects ...

Disinflation: Progress and Prospects

St. Louis Fed President Jim Bullard presented “Disinflation: Progress and Prospects” at a meeting of the Greater Jackson Chamber in Tennessee.Bullard discussed the improved U.S. real GDP growth in the second half of 2022, the strong labor market performance, and the start of the disinflationary process.He also noted that front-loaded Fed policy has helped keep market-based measures of inflation expectations relatively low. Continued policy rate increases can help lock in a disinflationary trend this year, even with ongoing growth and strong labor markets, he said.

Working Paper
The Macroeconomic Risks of Undesirably Low Inflation

This paper investigates the macroeconomic risks associated with undesirably low inflation using a medium-sized New Keynesian model. We consider different causes of persistently low inflation, including a downward shift in long-run inflation expectations, a fall in nominal wage growth, and a favorable supply-side shock. We show that the macroeconomic effects of persistently low inflation depend crucially on its underlying cause, as well as on the extent to which monetary policy is constrained by the zero lower bound. Finally, we discuss policy options to mitigate these effects.
International Finance Discussion Papers , Paper 1162

The Inflation Rate Is Falling, but Prices Are Not

Inflation is likely a topic your students are familiar with, but there is still a lot of confusion around the concept. This brief article explains the seeming paradox we see in our economy: The inflation rate is decreasing, but prices continue to increase. We’ll also disentangle the concepts of inflation, disinflation, deflation, and the CPI.
Page One Economics Newsletter

The First Steps toward Disinflation

Inflation in the U.S. is comparable to 1970s levels, and U.S. inflation expectations could become unmoored without credible Fed action, St. Louis Fed President Jim Bullard said during a presentation in Barcelona, Spain. He noted that the Fed has reacted by taking important first steps to return inflation to the 2% target and that U.S. market interest rates have increased substantially, partially in response to promised Fed action.

The First Steps toward Disinflation

St. Louis Fed President Jim Bullard presented “The First Steps toward Disinflation” virtually at an event hosted by the Economic Club of Memphis.Bullard noted that inflation in the U.S. is comparable to levels seen in the 1970s. He added that U.S. inflation expectations could become unmoored without credible Fed action, possibly leading to a new regime of high inflation and volatile real economic performance.The Fed has reacted by taking important first steps to return inflation to the 2% target, Bullard said, adding that market interest rates have increased substantially, partially in ...

Zombie Credit and (Dis-)Inflation: Evidence from Europe

We show that “zombie credit”—cheap credit to impaired firms—has a disinflationary effect. By helping distressed firms to stay afloat, such credit creates excess production capacity, thereby putting downward pressure on product prices. Granular European data on inflation, firms, and banks confirm this mechanism. Industry-country pairs affected by a rise of zombie credit show lower firm entry and exit rates, markups, and product prices, as well as a misallocation of capital and labor, which results in lower productivity, investment, and value added. Without a rise in zombie credit, ...
Staff Reports , Paper 955

Discussion Paper
High Unemployment and Disinflation in the Euro Area Periphery Countries

Economists often model inflation as dependent on inflation expectations and the level of economic slack, with changes in expectations or slack leading to changes in the inflation rate. The global slowdown and the subsequent sovereign debt crisis caused the greatest divergence in unemployment rates among euro area member countries since the monetary union was founded in 1999. The pronounced differences in economic performances of euro area countries since 2008 should have led to significant differences in price behavior. That turned out to be the case, with a strong correlation evident between ...
Liberty Street Economics , Paper 20140714a


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