Central banks

Vaishali Garga, Edward Herbst, Alisdair McKay, Giovanni Nicolò, and Matthias PaustianWe review the design and communication of monetary policy strategies that take into account risks and uncertainty. A key element in a robust monetary strategy is the concept of risk management, which is the weighing of key risks when setting policy.

Hess Chung, Callum Jones, Antoine Lepetit, and Fernando M. MartinThis paper considers robust monetary policy strategies both in situations of low demand and low inflation and when economic developments pose a tradeoff between inflation and output stabilization. We proceed in two parts.

Ina Hajdini, Adam Shapiro, A. Lee Smith, and Daniel VillarThis paper reviews the drivers of the post-pandemic U.S. inflation surge and subsequent decline, including the behavior and role of inflation expectations. The sharp rise in inflation reflected severe imbalances between supply and demand stemming from the shocks of the pandemic and the policy response.

Brent Bundick, Isabel Cairó, and Nicolas Petrosky-NadeauThis paper reviews recent academic studies to assess the implications of adopting a shortfalls, rather than a deviations, approach to pursuing maximum employment. Model-based simulations from these studies suggest three main findings. First, shortfalls rules generate inflationary pressure relative to deviations rules, which offsets downward pressure on inflation stemming from the presence of the effective lower bound.