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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 ...
Newsletter
Are Long-run Inflation Expectations Well Anchored?
Many observers anticipate that the recent run-up in inflation in the United States will prove to be temporary, and annual inflation will be near the Fed’s target of 2% in 2022 and 2023. An important consideration for policymakers, however, is whether the private sector will similarly read the rise in inflation as temporary. That is, are long-run inflation expectations likely to remain anchored, or might the sharp rise in inflation cause long-run expectations to increase substantially as well?
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 ...