The Hard Road to a Soft Landing: Evidence from a (Modestly) Nonlinear Structural Model

Author:

Verbrugge Randal J.1ORCID,Zaman Saeed1ORCID

Affiliation:

1. Federal Reserve Bank of Cleveland

Abstract

What drove inflation so high in 2022? Can it drop rapidly without a recession? The Phillips curve is central to the answers; its proper (nonlinear) specification reveals that the relationship is strong and frequency dependent, and inflation is very persistent. We embed this empirically successful Phillips curve – incorporating a supply-shocks variable – into a structural model. Identification is achieved using an underutilized data-dependent method. Despite imposing anchored inflation expectations and a rapid relaxation of supply-chain problems, we find that absent a recession, inflation will be more than 3 percent by the end of 2025. A simple welfare analysis supports a mild recession as preferred to an extended period of elevated inflation, under a typical loss function

Publisher

Federal Reserve Bank of Cleveland

Cited by 6 articles. 订阅此论文施引文献 订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献

1. Disentangling Rent Index Differences: Data, Methods, and Scope;Working paper (Federal Reserve Bank of Cleveland);2023-09-28

2. Improving inflation forecasts using robust measures;International Journal of Forecasting;2023-06

3. Improving inflation forecasts using robust measures;Working paper (Federal Reserve Bank of Cleveland);2023-05-30

4. The intermittent Phillips curve: finding a stable (but persistence-dependent) Phillips curve model specification;Working paper (Federal Reserve Bank of Cleveland);2023-02-14

5. Post-COVID Inflation Dynamics: Higher for Longer;Working paper (Federal Reserve Bank of Cleveland);2023-01-13

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