The Supply Shock Explanation of the Great Stagflation Revisited

U.S. inflation data exhibit two notable spikes into the double-digit range in 1973-1974 and again in 1978-1980. The well-known “supply-shock” explanation attributes both spikes to large food and energy shocks plus, in the case of 1973-1974, the removal of price controls. Yet critics of this explanation have (a) attributed the surges in inflation to monetary policy and (b) pointed to the far smaller impacts of more recent oil shocks as evidence against the supply-shock explanation. This paper reexamines the impacts of the supply shocks of the 1970s in the light of the new data, new events, new theories, and new econometric studies that have accumulated over the past quarter century. We find that the classic supply-shock explanation holds up very well; in particular, neither data revisions nor updated econometric estimates substantially change the evaluations of the 1972-1983 period that were made 25 years (or more) ago. We also rebut several variants of the claim that monetary policy, rather than supply shocks, was really to blame for the inflation spikes. Finally, we examine several changes in the economy that may explain why the impacts of oil shocks are so much smaller now than they were in the 1970s.

Por que achamos que as expectativas de inflação são importantes para a inflação? (E devemos pensar nisso?)

Economists and economic policymakers believe that households’ and firms’ expectations of future inflation are a key determinant of real inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on unsound foundations and leads to the argument that adhering to it uncritically could easily result in serious policy errors.Los economistas y los diseñadores de política económica creen que las expectativas de los hogares y las empresas acerca de la inflación futura son un factor determinante de la inflación real. Un examen de la literatura teórica y empírica pertinente sugiere que esta creencia se basa en fundamentos poco sólidos y lleva a argumentar que adoptarla en forma acrítica puede conducir fácilmente a graves errores de política económica.Economistas e formuladores de políticas acreditam que as expectativas das famílias e das empresas sobre a inflação futura são um dos principais determinantes da inflação real. Uma revisão da literatura teórica e empírica relevante sugere que essa crença é baseada em fundamentos instáveis e leva ao argumento de que a adoção acrítica pode facilmente levar a sérios erros de política

The Supply-Shock Explanation of the Great Stagflation Revisited

U.S. inflation data exhibit two notable spikes into the double-digit range in 1973-1974 and again in 1978-1980. The well-known "supply-shock" explanation attributes both spikes to large food and energy shocks plus, in the case of 1973-1974, the removal of price controls. Yet critics of this explanation have (a) attributed the surges in inflation to monetary policy and (b) pointed to the far smaller impacts of more recent oil shocks as evidence against the supply-shock explanation. This paper reexamines the impacts of the supply shocks of the 1970s in the light of the new data, new events, new theories, and new econometric studies that have accumulated over the past quarter century. We find that the classic supply-shock explanation holds up very well; in particular, neither data revisions nor updated econometric estimates substantially change the evaluations of the 1972-1983 period that were made 25 years (or more) ago. We also rebut several variants of the claim that monetary policy, rather than supply shocks, was really to blame for the inflation spikes. Finally, we examine several changes in the economy that may explain why the impacts of oil shocks are so much smaller now than they were in the 1970s.

Determinacy of Equilibrium Under Various Phillips Curves

Determinacy of equilibrium under the original, the backward-looking, the forward-looking and the hybrid Phillips curves is examined. If the monetary authority keeps the nominal money stock to be constant, the equilibrium path is always determinate under the original Phillips curve and the forward-looking one. Under the backward-looking one and the hybrid one, however, the path can be non-existent. The case of a Taylor rule is also examined. Under any of the four curves the path is always determinate if the monetary policy is active but is never determinate if it is passive

Finished Genome of the Fungal Wheat Pathogen Mycosphaerella graminicola Reveals Dispensome Structure, Chromosome Plasticity, and Stealth Pathogenesis.

The plant-pathogenic fungus Mycosphaerella graminicola (asexual stage: Septoria tritici) causes septoria tritici blotch, a disease that greatly reduces the yield and quality of wheat. This disease is economically important in most wheat-growing areas worldwide and threatens global food production. Control of the disease has been hampered by a limited understanding of the genetic and biochemical bases of pathogenicity, including mechanisms of infection and of resistance in the host. Unlike most other plant pathogens, M. graminicola has a long latent period during which it evades host defenses. Although this type of stealth pathogenicity occurs commonly in Mycosphaerella and other Dothideomycetes, the largest class of plant-pathogenic fungi, its genetic basis is not known. To address this problem, the genome of M. graminicolawas sequenced completely. The finished genome contains 21 chromosomes, eight of which could be lost with no visible effect on the fungus and thus are dispensable. This eight-chromosome dispensome is dynamic in field and progeny isolates, is different from the core genome in gene and repeat content, and appears to have originated by ancient horizontal transfer from an unknown donor. Synteny plots of the M. graminicola chromosomes versus those of the only other sequenced Dothideomycete, Stagonospora nodorum, revealed conservation of gene content but not order or orientation, suggesting a high rate of intra-chromosomal rearrangement in one or both species. This observed “mesosynteny” is very different from synteny seen between other organisms. A surprising feature of the M. graminicolagenome compared to other sequenced plant pathogens was that it contained very few genes for enzymes that break down plant cell walls, which was more similar to endophytes than to pathogens. The stealth pathogenesis of M. graminicola probably involves degradation of proteins rather than carbohydrates to evade host defenses during the biotrophic stage of infection and may have evolved from endophytic ancestors

The Inflation Expectations of Firms: What Do They Look Like, are They Accurate, and Do They Matter?

The purpose of this paper is to answer the three questions in the title. Using a large monthly survey of businesses, we investigate the inflation expectations and uncertainties of firms. We document that, in the aggregate, firm inflation expectations are very similar to the predictions of professional forecasters for national inflation statistics, despite a somewhat greater heterogeneity of expectations that we attribute to the idiosyncratic cost structure firms face. We also show that firm inflation expectations bear little in common with the "prices in general" expectations reported by households. Next we show that, during our three-year sample, firm inflation expectations appear to be unbiased predictors of their year-ahead observed (perceived) inflation. We demonstrate that firms know what they don't know - that the accuracy of firm inflation expectations are significantly and positively related to their uncertainty about future inflation. And lastly, we demonstrate, by way of a cross-sectional Phillips curve, that firm inflation expectations are a useful addition to a policymaker's information set. We show that firms' inflation perceptions depend (importantly) on their expectations for inflation and their perception of firm-level slack

The FRBNY Staff Underlying Inflation Gauge: UIG

Monetary policymakers and long-term investors would benefit greatly from a measure of underlying inflation that uses all relevant information, is available in real time, and forecasts inflation better than traditional underlying inflation measures such as core inflation measures. This paper presents the 'FRBNY Staff Underlying Inflation Gauge (UIG)' for CPI and PCE. Using a dynamic factor model approach, the UIG is derived from a broad data set that extends beyond price series to include a wide range of nominal, real, and financial variables. It also considers the specific and time-varying persistence of individual subcomponents of an inflation series. An attractive feature of the UIG is that it can be updated on a daily basis, which allows for a close monitoring of changes in underlying inflation. This capability can be very useful when large and sudden economic fluctuations occur, as at the end of 2008. In addition, the UIG displays greater forecast accuracy than traditional measures of core inflation