Both Webber who I criticize in “Inflation Conclusions and Policy” and Bourne-Fomularo somehow leave Fed policy out of this. However greedy/empowered to raise prices firms become or however big the fiscal deficit, neither can "cause" inflation without the Fed.
If we model Fed behavior as trying to fulfill its mandate via a Flexible Average Inflation Target regime, either kind of shock creates a need for relative price adjustments, which, with some prices being sticky [the Webber claim amounts to an increase in stickiness], will lead the Fed to engineer/allow over-target inflation to permit the adjustment. This Fed behavior will look like deficits or stickiness-enhanced supply shock “caused” inflation.
I’m sympathetic to Bourne-Fomularo’s skepticism as to whether Webber’s technique can identify a change in firm behavior that increases stickiness. I don’t pretend that have looked under the hood of Webber’s model or ‘s Bourne-Cutsinger’s counter model, however, to be highly confident of my sympathy.
As for “Never Reason From a Price Change,” let amend that to “Never Reason From the Change in an Endogenous Variable.” :)
Several comments:
Both Webber who I criticize in “Inflation Conclusions and Policy” and Bourne-Fomularo somehow leave Fed policy out of this. However greedy/empowered to raise prices firms become or however big the fiscal deficit, neither can "cause" inflation without the Fed.
If we model Fed behavior as trying to fulfill its mandate via a Flexible Average Inflation Target regime, either kind of shock creates a need for relative price adjustments, which, with some prices being sticky [the Webber claim amounts to an increase in stickiness], will lead the Fed to engineer/allow over-target inflation to permit the adjustment. This Fed behavior will look like deficits or stickiness-enhanced supply shock “caused” inflation.
I’m sympathetic to Bourne-Fomularo’s skepticism as to whether Webber’s technique can identify a change in firm behavior that increases stickiness. I don’t pretend that have looked under the hood of Webber’s model or ‘s Bourne-Cutsinger’s counter model, however, to be highly confident of my sympathy.
As for “Never Reason From a Price Change,” let amend that to “Never Reason From the Change in an Endogenous Variable.” :)