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Authors = Orkideh Gharehgozli ORCID = 0000-0003-1007-9309

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14 pages, 961 KiB  
Article
Money Supply and Inflation after COVID-19
by Orkideh Gharehgozli and Sunhyung Lee
Economies 2022, 10(5), 101; https://doi.org/10.3390/economies10050101 - 28 Apr 2022
Cited by 26 | Viewed by 21838
Abstract
The core personal consumption expenditure (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose to 5.2 percent on January 2022, which is the highest rate of increase since 40 years ago. Our estimates show that the annualized quarterly core PCE prices could [...] Read more.
The core personal consumption expenditure (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose to 5.2 percent on January 2022, which is the highest rate of increase since 40 years ago. Our estimates show that the annualized quarterly core PCE prices could reach 5.45% in the second quarter of 2022 and are as high as 8.57% in a longer time horizon unless corrected with restrictive monetary policies. Thus, the inflation shock since COVID-19 is not transitory, but it is persistent. As economists expect the Federal Reserve to tighten the money supply in March 2022, the insufficient policy responses may be attributed to a failure to incorporate a unique macroeconomic shock to unemployment during the pandemic. We propose a modified vector autoregression (VAR) model to examine structural shocks after COVID-19, and our proposed model performs well in forecasting future price levels in times of a pandemic. Full article
(This article belongs to the Special Issue International Financial Markets and Monetary Policy)
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