Economists Ben Bernanke and Olivier Blanchard published a preprint of the article “What Causes Post-Pandemic Inflation in the US?”
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Ben Bernanke and Olivier Blanchard, one of the world’s most famous macroeconomists, presented their explanation for the elevated global inflationary backdrop following the COVID-19 pandemic in a preprint article in the NBER series. In their opinion, the main problem is the imbalance in the labor market, other problems are secondary, and the long-term consequences of the shock of 2020-2021 for the economy should be softer than those expected by representatives of alternative points of view. Using the example of further circulation of the text of the work, it will be possible to assess the change in the information environment in the post-COVID world.
A preprint of an article with the uncharacteristically harsh title “What Causes Post-Pandemic Inflation in the US?” published by NBER by two outstanding macroeconomists by any standards – former head of the US Federal Reserve, Nobel laureate in economics Ben Bernanke (now – Brookins Institute) and former chief economist of the IMF Olivier Blanchard (Petersen Institute). Bernanke, born in 1953, Blanchard, born in 1948, apparently also involved in the work of employees of the Hutchins Center for Tax and Monetary Policy, created by the current institutions that employ economists. At the same time, the work does not contain excessively complex and innovative methods of analysis: since 2021, similar models have been built and discussed in thousands of papers; the authors of this do not at all hide the fact that the subject of their interest is the nuances of the interpretation of a more or less well-known construction. However, this is a very important construction: the article is the opinion of Bernanke and Blanchard on the nature of post-COVID inflation, and not only and not so much in the United States (although based on US materials), but in the global economy – and this, in fact, is the number one market question in coming months or years.
In the review of the literature on the topic, the authors identify three prevailing points of view. According to the first one (described by Stephen Cecchetti and his colleagues in February at a conference at the University of Chicago), modern views on the Phillips curve in the neo-Keynesian model (an empirically determined relationship between unemployment and inflation) need to be clarified, it works non-linearly and disinflationary processes in the post-COVID world will be long and problematic. The second point of view (in particular, expressed by Luca Gardaglione and Mark Gertler) considers the combination of an oil shock in a pandemic and incorrectly excessive protection of markets by central banks to be the root cause of high inflation. Finally, Bernanke and Blanchard speak almost insultingly of the opinion of Christopher Koch and Lia Nureldin (they are presented as the authors of the “posthumous” point of view, “after they failed to predict a surge in world inflation”) that the main driver of inflation after the pandemic is a strong and an unusual shock to aggregate demand and, like Gardaglione and Gertler, mistakes by global central banks—in this case caused by overestimating the depth of the supply-side downturn.
Bernanke and Blanchard’s own conclusions are closer to the point of view of Cecchetti and colleagues: the main problem is not the actions of central banks, but the imbalance of the labor market (that is, in fact, the consequences of a non-economic shock in nature), associated, among other things, with non-standard distortions in the dynamics of inflation expectations . At the same time, Bernanke and Blanchard consider the basic argument of the opponents – the rigidity of the labor market could not create long-term increased inflation – to be “factually correct”, but their explanatory scheme assumes that everything that is happening is a large-scale, but ordinary labor market shock, “complemented” with other circumstances ( “Russian-Ukrainian war”, unevenness and “multiplication” of shocks in local labor markets and in logistics, etc.). The conclusion of the authors is that there is no danger of an “inflationary spiral” in the world (in the works of opponents it is possible in some cases), and global disinflation will be relatively painless.
The point of view of Blanchard and Bernanke is interesting primarily for the perspectives of its perception. This kind of opinion about post-COVID inflation has been expressed before, although with a different set of emphases and less comprehensively. Apparently, Blanchard and Bernanke do not have arguments that are stronger than those that bring down the opinions of their opponents, but they do have status and reputation. Two or three decades ago, the highest authority of the authors, apparently, would have made the authors’ point of view preferable both for governments and for most economists – and by the way the authors’ theses are accepted, it will be possible to indirectly judge what COVID-19 has changed in the field of reputations.
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