Inflation and Phillips Curve Analysis
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Questions and Answers

What is the main focus of the section?

  • Stability of the Phillips curve
  • Causes of inflation (correct)
  • Rising relative prices
  • Goods and labor markets

    • What has been the trend in Euro Area's inflation rate from September 2023 to October?

  • Fluctuated between 3-4% p.a.
  • Remained constant at 4.3% p.a.
  • Decreased from 4.3% to 3.6% p.a.
  • Increased from 4.3% to 2.9% p.a. (correct)

    • What has been the trend in core inflation in the Euro Area from September 2023 to October?

  • Fluctuated between 3-4% p.a.
  • Remained constant at 4.2% p.a.
  • Decreased from 4.2% to 3.6% p.a. (correct)
  • Increased from 3.6% to 4.2% p.a.

    • What has been the trend in the key policy rate set by ECB from July 2022 to the present?

    <p>Ten successive hikes</p> Signup and view all the answers

    What is the current bank lending rate (on main refinancing operations) set by the ECB?

    <p>4.5% p.a.</p> Signup and view all the answers

    According to the given text, how is inflation defined by Bryan (2006)?

    <p>The amount of money in circulation relative to the amount actually needed for trade</p> Signup and view all the answers

    What is challenging about disentangling relative price changes from nominal ones, as mentioned in the text?

    <p>It requires a statistical or formal model</p> Signup and view all the answers

    What factor did Geyer (2023) indicate explains up to 70% of measured inflation in Austria since early 2021?

    <p>Imported gas and oil-price shocks</p> Signup and view all the answers

    What does Borio, Hofmann, Zakrajšek (2023) show about the inclusion of growth of broad money aggregates in professionals’ inflation forecast?

    <p>It would have significantly improved professionals’ inflation forecast</p> Signup and view all the answers

    What was already at 6% p.a. prior to Feb. 24, 2022, as per the given text?

    <p>HICP-based inflation</p> Signup and view all the answers

    According to the given text, what does Bryan (2006) define inflation as?

    <p>A rise in all nominal prices, not just a subset, due to monetary phenomenon</p> Signup and view all the answers

    What is a criticism of Geyer (2023)'s explanation for up to 70% of measured inflation in Austria since early 2021?

    <p>It takes the I-O structure as given and ignores expectations and substitution in reaction to relative price changes</p> Signup and view all the answers

    According to Borio, Hofmann, Zakrajšek (2023), what would have significantly improved professionals' inflation forecast?

    <p>Including growth of broad money aggregates</p> Signup and view all the answers

    What does Mervyn King's statement 'No money, no inflation' imply?

    <p>Inflation is solely dependent on the amount of money in circulation</p> Signup and view all the answers

    What is challenging about disentangling relative price changes from nominal ones?

    <p>It is difficult to separate relative price changes from nominal ones without considering expectations and substitution</p> Signup and view all the answers

    What is the primary focus of the section on inflation and the Phillips curve?

    <p>Examining the causes of inflation, including cost shocks, domestic pass-through, and monetary policy</p> Signup and view all the answers

    What explains the currently high level of inflation in the Euro Area according to the given text?

    <p>Endogenous monetary policy</p> Signup and view all the answers

    What is the trend in core inflation in the Euro Area from September 2023 to October?

    <p>Decreased from 4.2% to 3.6% p.a.</p> Signup and view all the answers

    What has been the trend in the key policy rate set by ECB from July 2022 to the present?

    <p>Increased steadily</p> Signup and view all the answers

    What is the implication for ECB's monetary policy if structural changes in goods and labor markets contribute to inflation?

    <p>The ECB may need to revise its inflation targeting framework</p> Signup and view all the answers

    Study Notes

    Euro Area Inflation and Monetary Policy

    • From September 2023 to October, the Euro Area's inflation rate has been trending downwards.
    • Core inflation in the Euro Area has also been trending downwards from September 2023 to October.
    • The key policy rate set by the European Central Bank (ECB) has been increasing from July 2022 to the present.
    • The current bank lending rate (on main refinancing operations) set by the ECB is 6% p.a.

    Inflation Definition and Measurement

    • According to Bryan (2006), inflation is defined as a sustained increase in the general price level of goods and services in an economy over a period of time.
    • Disentangling relative price changes from nominal ones is challenging due to the complexity of distinguishing between changes in prices and changes in the economy.

    Factors Influencing Inflation

    • Geyer (2023) indicates that the lockdowns and supply chain disruptions explain up to 70% of measured inflation in Austria since early 2021.
    • A criticism of Geyer's explanation is that it may not fully capture the complexity of inflation dynamics.

    Monetary Policy and Inflation Forecast

    • Borio, Hofmann, and Zakrajšek (2023) show that including the growth of broad money aggregates in professionals' inflation forecast would have significantly improved their predictions.
    • Mervyn King's statement 'No money, no inflation' implies that the money supply is a key driver of inflation.

    Inflation and the Phillips Curve

    • The primary focus of the section on inflation and the Phillips curve is the relationship between inflation, unemployment, and monetary policy.
    • The implication for ECB's monetary policy if structural changes in goods and labor markets contribute to inflation is that the ECB may need to adjust its policy to address these underlying factors.

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    Description

    Learn about the causes of inflation, the difference between rising relative prices and inflation, and the relationship between inflation, goods, and labor markets. Explore the stability of the Phillips curve in the Euro Area.

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