NY Fed Research On Disinflation Policies To Cost-Push Shocks

• NY Fed research shows that "due to a flat Phillips curve—a well-documented feature of the economic environment of the last three decades—monetary policy can only achieve faster disinflation at a considerable cost in terms of forgone economic activity."
• In the New York Fed DSGE model, "monetary policy faces an unfavorable trade-off when attempting to stabilize inflation in response to cost-push shocks, due to an extremely flat Phillips curve".
• "One silver lining in this pessimistic conclusion is that, if the model is right and cost-push shocks are the main reason behind inflation, their effect should dissipate over time, at least according to historical patterns. If the model is wrong and inflation is driven instead by demand shocks, monetary policy is well-positioned to reduce their inflationary effects."
• Further, flexible average inflation targeting reduces inflation a bit faster than historical flexible inflation targeting, "but this small benefit in terms of inflation control comes at a very large real cost".

https://libertystreeteconomics.newyorkfed.org/2022/03/disinflation-policies-with-a-flat-phillips-curve/