A0289
Title: Inflation dynamics during the COVID-19 era: A high-frequency approach
Authors: Hie Joo Ahn - Federal Reserve Board (United States)
Simon Smith - Federal Reserve Board (United States) [presenting]
Abstract: Exploiting a novel weekly panel dataset of prices and quantities across 14 sectors and the U.S. aggregate since January 2020, high-frequency inflation dynamics are studied, with a particular focus on the Phillips curve and the pass-through of monetary policy. The novel dataset holds significant out-of-sample predictability for official inflation and retail sales measures, suggesting its usefulness for the inference of aggregate dynamics. The model of Bayesian break detection suggests the Phillips curve steepened from October 2020 to July 2021 and then flattened afterwards. These shifts are detected in real-time, providing timely signals about changes in inflation trends and uncertainty. Last, monetary policy rapidly passed through to price and quantity changes during the recovery after the pandemic recession, likely preventing a deflationary spiral.
