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Drivers of Inflation: The New York Fed DSGE Model’s Perspective

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Abstract

After a sharp decline in the first few months of the COVID-19 pandemic, inflation rebounded in the second half of 2020 and surged through 2021. This post analyzes the drivers of these developments through the lens of the New York Fed DSGE model. Its main finding is that the recent rise in inflation is mostly accounted for by a large cost-push shock that occurred in the second quarter of 2021 and whose inflationary effects persist today. Based on the model’s reading of historical data, this shock is expected to fade gradually over the course of 2022, returning quarterly inflation to close to 2 percent only in mid-2023.

Suggested Citation

  • Marco Del Negro & Aidan Gleich & Shlok Goyal & Alissa Johnson & Andrea Tambalotti, 2022. "Drivers of Inflation: The New York Fed DSGE Model’s Perspective," Liberty Street Economics 20220301, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:93778
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    File URL: https://libertystreeteconomics.newyorkfed.org/2022/03/drivers-of-inflation-the-new-york-fed-dsge-models-perspective/
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    Cited by:

    1. Filippo Ferroni & Jonas D. M. Fisher & Leonardo Melosi, 2022. "Usual Shocks in our Usual Models," Working Paper Series WP 2022-39, Federal Reserve Bank of Chicago.
    2. Guénette, Justin Damien & Kose, M. Ayhan & Sugawara, Naotaka, 2022. "Is a Global Recession Imminent?," MPRA Paper 114627, University Library of Munich, Germany.
    3. Melina, Giovanni & Villa, Stefania, 2023. "Drivers of large recessions and monetary policy responses," Journal of International Money and Finance, Elsevier, vol. 137(C).
    4. Ferroni, Filippo & Fisher, Jonas D.M. & Melosi, Leonardo, 2024. "Unusual shocks in our usual models," Journal of Monetary Economics, Elsevier, vol. 147(C).

    More about this item

    Keywords

    inflation; DSGE; macroeconomics;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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