201. The Long-Run Costs of Higher Inflation
- Author
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Bowles, Jean-Paul L'Huillier and DeLuca, Martin
- Subjects
Phillips curve -- Economic aspects -- Statistics ,Inflation (Finance) -- Statistics -- Economic aspects ,Interest rates -- Statistics -- Economic aspects ,Banking, finance and accounting industries ,Business, general ,Business ,Economics - 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., Broadly speaking, inflation is defined as ongoing increases in the general prices of goods and services. (1) As part of its dual mandate, the Federal Reserve is tasked with maintaining [...]
- Published
- 2023