From the inflation/stimulus trade-off standpoint, this is how I look at it:
We have a target area of 2%.
We had a series of supply shocks, a war, and heavy fiscal stimulus.
Average inflation was 8% last year and almost 4% the year before. And let’s say 2023 will also be 4%.
We have a target area of 2%.
We had a series of supply shocks, a war, and heavy fiscal stimulus.
Average inflation was 8% last year and almost 4% the year before. And let’s say 2023 will also be 4%.
So cumulative excess inflation would very roughly be 10% over three years.
Probably 1/2 to 2/3 of that was from the series of Covid shocks and the war.
So, you end up having an extra 3 1/2 to 5% inflation spread over three years in exchange for basically everybody having jobs.
Probably 1/2 to 2/3 of that was from the series of Covid shocks and the war.
So, you end up having an extra 3 1/2 to 5% inflation spread over three years in exchange for basically everybody having jobs.
Yes, we put out too much fiscal stimulus in hindsight. But in retrospect, if inflation continues to come down and we do get that soft landing, it seems like a very small price to have paid—especially when compared to other outcomes across the world.
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