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Explaining the 2022-23 Disinflation Out-of-Sample
In tomorrow’s lecture on the Phillips Curve and the recent inflation surge for Econ 442, I ask whether a modifed Blanchard-Cerutti-Summers (2015) Phillips Curve specification can predict the disinflation. Answer: Yes. BCS use: equation I modify by (1) unconstraining the coefficients on expected and lagged y/y inflation, (2) using lagged y/y core instead of headline CPI, (3) using the relative inflation rate of oil instead of imported materials, and/or (4) adding the NY Fed’s Global Supply Chain Pressure Index (GSCPI). I then estimate 1998-2019 (the sample dictated by availability of the GSCPI, and avoiding the ... (full story)