Seminar in Macroeconomics II

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VortragsspracheEnglisch

What's up Inflation? Recent advances in theory and empirics

Description

For decades, inflation seemed absent from the economies of the US and even more so from the Euro area -- until, all of a sudden, it returned forcefully in 2021. What fundamentally drives inflation or deflation? How do central banks keep inflation on target? To understand inflation can we simply focus on monetary policy and abstract from fiscal policy? In this seminar, we discuss cutting-edge studies from different, yet interconnected, strands of literature on inflation. You will learn of the special role of expectations as a key inflation driver, how inflation expectations are determined, and whether economic agents form their expectations rationally, or are affected by cognitive biases. Furthermore, we will review how monetary policies, fiscal policies, and their interaction determine the aggregate price level, and how its determination is more complex than benchmark theories have so far described. Connecting to recent trends and events around debt dynamics in both the private and public sectors, we will discuss to what extent inflation can erode their real burdens. Finally, we will focus on where inflation is currently heading, and what data reveal about the sources of recent inflation. In doing so we will pay special attention to the inflationary impact of rising energy prices.

 

Modality

Your tasks consist of (i) presenting a paper on one of the topics and (ii) writing a seminar paper connecting to further articles in the scientific literature while displaying your critical thinking.
    The kick-off meeting will take place online (details will be provided in due course) on Wednesday, April 19, from 14:00 to 15:30. The allocation of the topics will be according to your stated preferences and announced during the kick-off meeting. Presentations will take place in person across two days, on Wednesday, July 12, and Thursday, July 13.
    The language of this seminar is English, which applies to presentations, discussions, and seminar papers.
    Prerequisites: Basic statistics, Intro to Microeconomics and Macroeconomics.    

 

Topics

  • Determinants of Inflation -- Fiscal or monetary dominance?
    • T1: Castillo-Martinez, L. and Reis, R. (2019). "How do central banks control inflation? A guide for the perplexed." Working Paper.
    • T2: John H. Cochrane. (2022). "The fiscal roots of inflation.'' Review of Economic Dynamics, Volume 45, Pages 22-40.
    • T3: E.M. Leeper, and C. Leith. (2016). "Understanding Inflation as a Joint Monetary-Fiscal Phenomenon.'' Handbook of Macroeconomics, Volume 2, Pages 2305-2415.
  • Inflation and Debt -- Public debt, private debt, no more debt?
    • T4: Jens Hilscher, Alon Raviv, and Ricardo Reis. (2022). "Inflating Away the Public Debt? An Empirical Assessment.'' The Review of Financial Studies, Volume 35, Issue 3, Pages 1553–1595. 
    • T5: Brunnermeier, Markus Konrad and Correia, Sergio and Luck, Stephan and Verner, Emil and Zimmermann, Tom. (2022). "The Debt-Inflation Channel of the German Hyperinflation.'' Working Paper.
  • Inflation Expectations -- Rational or irrational?
    • T6: Coibion, Olivier Gorodnichenko, Yuriy Kamdar, Rupal. (2018). ''The Formation of Expectations, Inflation, and the Phillips Curve.'' Journal of Economic Literature, 56 (4): 1447-91.
    • T7: D'Acunto, Francesco, Ulrike Malmendier, Juan Ospina, and Michael Weber. (2021). “Exposure to Grocery Prices and Inflation Expectations.” Journal of Political Economy 129 (5): 1615–39.
  • Recent Burst of Inflation -- How come and what’s to come?
    • T8: Reis, Ricardo. (2022). "The Burst of High Inflation in 2021-22: How and Why Did We Get Here?'' In How Monetary Policy Got Behind the Curve--And How to Get it Back, edited by Michael Bordo, John Cochrane, and John Taylor, Hoover Institution Press, Pages 203-252. 
      • Background reading: Reis, Ricardo. (2021). “Losing the Inflation Anchor.” Brookings Papers on Economic Activity, 307–61.
    • T9: Kilian, Lutz and Zhou, Xiaoqing. (2022). "A Broader Perspective on the Inflationary Effects of Energy Price Shocks.'' FRB of Dallas Working Paper No. 2224.
      • Background reading: Lutz Kilian, Xiaoqing Zhou. (2022). "The impact of rising oil prices on U.S. inflation and inflation expectations in 2020–23.'' Energy Economics, Volume 113.