BIS paper lays out ‘two-regime’ model of inflation
Framework could help central banks recognise and respond to bouts of higher inflation
The Bank for International Settlements offers up a new model of the inflation process in a paper published on March 20, which could help central banks deal with overheating economies.
At its heart, the model includes a self-reinforcing transition that can move an economy from a low-inflation regime to a high one. Once high inflation becomes embedded, it can be hard for a central bank to move back to the low-inflation state.
But it also emphasises that inflation can be self-stabilising when it
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