Understanding Post-Covid Inflation Dynamics
Martín Harding, Jesper Lindé, Mathias Trabandt
Journal of Monetary Economics,
November
2023
Abstract
We propose a macroeconomic model with a nonlinear Phillips curve that has a flat slope when inflationary pressures are subdued and steepens when inflationary pressures are elevated. The nonlinear Phillips curve in our model arises due to a quasi-kinked demand schedule for goods produced by firms. Our model can jointly account for the modest decline in inflation during the Great Recession and the surge in inflation during the post-COVID period. Because our model implies a stronger transmission of shocks when inflation is high, it generates conditional heteroskedasticity in inflation and inflation risk. Hence, our model can generate more sizeable inflation surges due to cost-push and demand shocks than a standard linearized model. Finally, our model implies that the central bank faces a more severe trade-off between inflation and output stabilization when inflation is elevated.
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The Nasty Gap 30 years after unification: Why East Germany is still 20% poorer than the West Dossier In a nutshell The East German economic convergence process is hardly…
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Research Profiles of the IWH Departments All doctoral students are allocated to one of the four research departments (Financial Markets – Laws, Regulations and Factor Markets –…
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Research Profile of the Department of Laws, Regulations and Factor Markets The Department of Laws, Regulations and Factor Markets conducts research on the interaction of labour…
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Productivity
Productivity: More with Less by Better Available resources are scarce. To sustain our society's income and living standards in a world with ecological and demographic change, we…
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Financial Systems: The Anatomy of the Market Economy How the financial system is constructed, how it works, how to keep it fit and what good a bit of chocolate can do. Dossier In…
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Our Projects 07.2022 ‐ 12.2026 Evaluation of the InvKG and the federal STARK programme On behalf of the Federal Ministry of Economics and Climate Protection, the IWH and the RWI…
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Lecturers at CGDE Institutions Jordan Adamson Assistant Professor at Institute for Empirical Economic Research, Leipzig University. Website Course: Econometrics (winter term…
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Research Profiles of the IWH Departments All doctoral students are allocated to one of the four research departments (Financial Markets – Laws, Regulations and Factor Markets –…
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Hollywood, Wall Street, and Mistrusting Individual Investors
Guido Lenz, Maximilian Mayer
Journal of Economic Behavior and Organization,
June
2023
Abstract
Individual investors reduce their trading activity in financial markets after the release of negatively biased Hollywood movies related to financial markets. These movies regularly depict financial markets and professionals active in them as marked by greed and corruption (Lichter et al. 1997). This decline in trading activity at the extensive margin comes together with depressed investor sentiment marked by higher likelihoods and volumes of selling than of buying transactions by those investors still active. Their avoidance of investing in and tendency to trade out of stocks related to companies in the financial industry, as well as their shift from actively managed mutual funds to passive vehicles (ETFs), provide evidence for the deterioration of investors’ trust in the financial industry and its managers. This channel is in line with existing literature on subjective beliefs in investment decisions and the impact of biased media coverage, such as the negative depiction of financial markets, shareholders, and managers in Hollywood movies.
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