In today's post, the first of a two-part series, the authors discuss the distributional effects of inflation and inflation stabilization through the lens of a Heterogeneous Agent New Keynesian model. They find that while inflation hurts everyone, it hurts the poor in particular. When the source of inflation is a supply shock, fighting inflation aggressively hurts the poor even more; however, the opposite is true for demand shocks. https://nyfed.org/3VQz5bO
Federal Reserve Bank of New York Can you extend your study to discuss the effect of automatic fiscal stabilizers? It is essential that the public understand the limits of monetary policy, and the role of fiscal policy in offsetting distributional effects of monetary policy.
The source of our current inflation is due to exactly one supply shock and that is massive QE, i.e., your fault. Keynesianism is responsible for our out-of-control fiat. If you want to stop hurting the poor, stop printing.
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1wThanks for sharing, Federal Reserve Bank of New York. There are parallels between this economic paradox and the approach taken by experts during the COVID-19 pandemic: As disinflationary policies can weaken the labor market and increase debt costs, the pandemic response has led to long-term economic challenges. Many low-income workers face ongoing job insecurity and higher debt levels due to the economic disruptions caused by the pandemic. Inflation Control vs. Economic Stability: Balancing inflation control with economic stability has been a significant challenge during the pandemic, much like managing the distributional effects of inflation and disinflationary policies. Overall, both situations highlight the difficulty in crafting policies that protect the most vulnerable while maintaining economic stability. The effects of these policies often have uneven distributional impacts, exacerbating existing inequalities.