One-sector inflation model insufficient
One-sector models for determining the optimal rate of inflation are insufficient, finds a new paper from the Richmond Federal Reserve.
The research finds that the inflation rate is an aggregate of the rates of price change for various consumption categories and that those individual rates of price change differ. The analyses shows that monetary policy in the 1970s resulted in a higher inflation rate because positive price shocks for flexible price goods were accommodated while sticky-price goods
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