A central focus of monetary policy is the underlying rate of inflation that might be expected to prevail over a horizon of one or two years. Because inflation is estimated from noisy data, the estimation of this underlying rate of inflation, which we refer to as trend inflation, requires statistical ...

For a small open economy, maintaining a stable exchange rate and moderate levels of inflation is often a goal of primary importance. At the same time, the profession has recognized the tight link between fiscal and monetary policies in determining inflation dynamics. Thus, the goal of a stable exchange ...

Monetary policies leave a fiscal footprint. When the central bank cuts the policy interest rate, this footprint comes through multiple channels: The demand for currency rises, so the central bank prints more banknotes to accommodate it, and this creates seignorage revenues. Inflation unexpectedly ...

Historically, many emerging economies, particularly in Latin America, battled against persistently high and volatile inflation. Today, emerging economies continue to experience higher inflation than developed ones, and their central banks deviate more frequently from inflation targets. These patterns ...

Understanding the dynamics of inflation has become an important challenge for both policymakers and researchers over the past decade. Empirical models linking inflation and economic activity—versions of the so-called Phillips curve—have failed to account for the behavior of inflation in many ...

Empirical models have failed to explain inflation behavior over the last 20 years in most developed economies. The unusual inflation dynamics—the ‘missing deflation’ during recessions and the ‘missing inflation’ during recoveries—points to a failure of Phillips curve predictions. Several hypotheses ...