Policy ‘pivot’ can deliver soft landing, says NBER paper

New research finds central banks may be able to engineer a soft landing after a supply shock if they execute a policy “pivot”, though the approach has some drawbacks.

Authors Paul Beaudry, Thomas Carter and Amartya Lahiri model how “looking through” a supply shock may be appealing to policy-makers, but could also allow inflation expectations to de-anchor. They reject the “canonical” new Keynesian model in favour of an approach where wages are more rigid than prices.

Their model employs an