Category: Think Tank

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One Response to “Welfare Costs of Shifting Trend Inflation”

  1. gkm says:

    I always love the “exogenously determined” aphorism. Yes, the inflation rate and interest rates are exogenously determined by a sub-set of households that are completely independent of the modeled economy i.e. they live on Mars and cannot possibly profit from a first mover advantage setting policy that provides an opportunity to capture the welfare utility differential for themselves induced via volatility. (Btw, even if they could, it’s for your own damn good.)

    Taking this paper at face value, the Fed should reflect on the aggregate of welfare destruction created by extreme price and business cycle volatility introduced lo’ this past decade plus. That doesn’t seem to be the point of this paper though since it seems to purport that the welfare detraction is not extreme and is justified in isolation. And as they don’t live on Mars, so what the heck – it’s a dirty job but…