Monetary policy more effective when inflation is high – NY Fed

Study casts doubts on linear models that average out impact during periods of high and low inflation


Monetary tightening has a greater and longer-lasting impact on prices and unemployment when inflation is above 5.5%, according to research from the Federal Reserve Bank of New York.

A new study by Valeria Gargiulo, Christian Matthes and Katerina Petrova finds that, below the 5.5% threshold, tightening has only “a short-lived effect on prices, but no effect on the unemployment rate”. 

The authors say this may explain the recent “soft landing” in the US, where inflation has fallen but unemployment

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