The conclusion from a New York Federal Reserve paper on how much of the current inflation spurt is driven by supply bottlenecks is worth reading for a not very subtle diss. Hat-tip to Mike Green for the spot.
The current debate on whether the Federal Reserve can engineer a soft landing needs to disentangle the drivers of US inflation. Our work shows that inflation in the US would have been 6 percent instead of 9 percent at the end of 2021 without supply bottlenecks. Our quantitative results clarify why some pundits were wrong to predict a transitory surge in inflation, while others were right in predicting high inflation, but for the wrong reasons. Put differently, fiscal stimulus and other aggregate demand factors would not have driven inflation this high without the pandemic-related supply constraints. In the absence of any new energy or other shock, it is therefore possible that the ongoing easing of supply bottlenecks will cause a substantial drop in inflation in the near term.
That’s our emphasis in bold, but the NY Fed’s hyperlinks. The first one takes you to a Paul Krugman mea-culpa, and the second one — on pundits that were right on high inflation but for the wrong reasons — takes you here:
Ouch. For econ nerds, here is a link to the full research paper by Julian di Giovanni of the NY Fed, Sebnem Kalemli-Ozcan and Alvaro Silva of the University of Maryland and Muhammed Yildirim of Harvard, rather than just the NY Fed blog summary. Obviously whether we truly have passed peak inflation is a big topic at the moment.
Update: As the generic disclaimer on the Fed’s Liberty Street Economics blog says, “the views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s)”.
Source: Economy - ft.com
