20240229-IMF-The_Consequences_of_Falling_Behind_the_Curve_Inflation_Shocks_and_Policy_Delays_Under_Rational_and_Behavioral_Expectations_52页_2mb

The Consequences of Falling Behind the Curve: Inflation Shocks and Policy Delays under Rational and Behavioral Expectations

Summary

This paper analyzes the economic effects of delayed policy responses to inflation shocks, particularly focusing on the prolonged high inflation observed in the U.S. and Eurozone following COVID-19 disruptions and the war in Ukraine. Policy delays often stem from beliefs that inflation was temporary or that past low inflation expectations would anchor future outcomes. However, as illustrated with Federal Reserve data (inflation breaching 2% in early 2021 and persisting until加息efforts began in March 2022), delayed responses can significantly amplify inflation and strain economic stability.

A simple three-period model demonstrates that while delay worsens inflation outcomes, it may reduce or reverse output declines if policy is subsequently aggressive. Using a calibrated New Keynesian model, this paper finds that welfare losses—measured through inflation and output gap volatility—are monotonically increasing with delay duration. Policy gains confidence reduces these losses, and adopting a less inertial policy rule or increasing inflation response coefficients significantly lowers economic costs.

Under cognitive discounting expectations, which reduces the potency of forward guidance, delay harms inflation stabilization but may mitigate output decline. The key findings are reinforced across both expectation frameworks: timely, aggressive policy actions (less inertia, higher inflation sensitivity) are crucial to mitigate delay-induced economic damage.

This study underscores the trade-off between inflation stabilization and output growth, suggesting that policymakers should prioritize proactive measures despite short-term costs. Delays exceeding one year can lead to substantial cumulative economic losses, highlighting the urgency in policy adjustments. Compared to Walsh (2022), this paper extends the analysis by incorporating behavioral expectations and employing refined loss metrics to capture the interplay between inflation and output stabilization.