FRBSF Economic Letters are brief summaries of SF Fed economic research that explain in reader-friendly terms what our work means for the people we serve. This section contains Economic Letters on monetary economics and macro-finance topics.
-
How Quickly Do Prices Respond to Monetary Policy?
Zoe Arnaut, Leila Bengali
With inflation still above the Federal Reserve’s 2% objective, there is renewed interest in understanding how quickly federal funds rate hikes typically affect inflation. Beyond monetary policy’s well-known lagged effect on the economy overall, new analysis highlights that not all prices respond with the same strength or speed. Results suggest that inflation for the most responsive categories of goods and services has come down substantially from recent highs, likely due in part to more restrictive monetary policy. As a result, the contributions of these categories to overall inflation have fallen.
-
Does Monetary Policy Have Long-Run Effects?
Òscar Jordà, Sanjay R. Singh, Alan M. Taylor
Monetary policy is often regarded as having only temporary effects on the economy, moderating the expansions and contractions that make up the business cycle. However, it is possible for monetary policy to affect an economy’s long-run trajectory. Analyzing cross-country data for a set of large national economies since 1900 suggests that tight monetary policy can reduce potential output even after a decade. By contrast, loose monetary policy does not appear to raise long-run potential. Such effects may be important for assessing the preferred stance of monetary policy.