Stagflation is just what the economy needs
Skip to main content
  • Home
  • Economy
    • Aviation
    • Bazaar
    • Budget
    • Industry
    • NBR
    • RMG
    • Corporates
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
    • Book Review
    • Brands
    • Earth
    • Explorer
    • Fact Check
    • Family
    • Food
    • Game Reviews
    • Good Practices
    • Habitat
    • Humour
    • In Focus
    • Luxury
    • Mode
    • Panorama
    • Pursuit
    • Wealth
    • Wellbeing
    • Wheels
  • Epaper
  • More
    • Subscribe
    • Videos
    • Thoughts
    • Splash
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • COVID-19
    • Games
    • Long Read
    • Interviews
    • Offbeat
    • Podcast
    • Quiz
    • Tech
    • Trial By Trivia
    • Magazine
  • বাংলা
The Business Standard

Monday
January 30, 2023

Sign In
Subscribe
  • Home
  • Economy
    • Aviation
    • Bazaar
    • Budget
    • Industry
    • NBR
    • RMG
    • Corporates
  • Stocks
  • Analysis
  • World+Biz
  • Sports
  • Features
    • Book Review
    • Brands
    • Earth
    • Explorer
    • Fact Check
    • Family
    • Food
    • Game Reviews
    • Good Practices
    • Habitat
    • Humour
    • In Focus
    • Luxury
    • Mode
    • Panorama
    • Pursuit
    • Wealth
    • Wellbeing
    • Wheels
  • Epaper
  • More
    • Subscribe
    • Videos
    • Thoughts
    • Splash
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • COVID-19
    • Games
    • Long Read
    • Interviews
    • Offbeat
    • Podcast
    • Quiz
    • Tech
    • Trial By Trivia
    • Magazine
  • বাংলা
MONDAY, JANUARY 30, 2023
Stagflation is just what the economy needs

Bloomberg Special

Narayana Kocherlakota, Bloomberg
01 December, 2022, 10:30 pm
Last modified: 01 December, 2022, 10:37 pm

Related News

  • Is a US recession near? Making the call is trickier than ever
  • What does inflation have in store for businesses?
  • UN forecasts fall in global economic growth to 1.9% in 2023
  • As inflation soars, Egyptians offered loans to buy books
  • Shipping-cost drop a 'smoking gun' foretelling inflation to cool

Stagflation is just what the economy needs

Narayana Kocherlakota, Bloomberg
01 December, 2022, 10:30 pm
Last modified: 01 December, 2022, 10:37 pm
Stagflation advocate?Photographer: Al Drago/Bloomberg
Stagflation advocate?Photographer: Al Drago/Bloomberg

The US Federal Reserve's pitched battle with rising prices has given rise to widespread concerns about a possible return of stagflation — the combination of high unemployment and high inflation that afflicted the US in the 1970s.

Actually, a bit of stagflation is just what the Fed should be — and appears to be — aiming for.

Monetary policy acts with a lag: If a central bank wants inflation to be lower a couple years in the future, it must raise interest rates now, to generate the slack in consumer and labor demand needed to slow growth in prices and wages. The appropriateness of its policy should thus be judged on where it expects unemployment and inflation to be. It shouldn't, for example, plan to miss its targets in opposite directions – a policy prescription known as Qvigstad's criterion (after the Norwegian central banker Jan Qvigstad). 1 If unemployment remains elevated when inflation is already below target, monetary policy has been too tight, inflicting more economic pain than necessary.

Logical as this all might be, it has a perhaps surprising implication: If the Fed is doing its job right, it will push up the unemployment rate before inflation declines, and both will remain elevated until they reach their targets. In other words, in accordance with what Qvigstad recommends, the Fed should be seeking to achieve a period of stagflation.

Judging from the Fed's most recent economic projections, a small amount of stagflation is exactly what it's going for. The median forecast, which assumes appropriate monetary policy, puts inflation and unemployment about 0.3 and 0.4 percentage point above target, respectively, at the end of 2024. While Qvigstad's criterion offers no guidance on what the relative size of unemployment and inflation misses should be, it appears that the Fed views a roughly one-for-one trade-off as appropriate. 

Granted, the Fed's forecasts tell us nothing about how it might respond if the economic outlook worsens. If, for example, officials decide that supply disruptions will be more persistent than previously thought, will they stick to the one-for-one tradeoff — allowing, say, inflation to pass through 5% and unemployment to pass through 7% before they begin to return to their targets? How much stagflation is the central bank willing to tolerate? This is a crucial policy question that the Fed needs to answer publicly.


Narayana Kocherlakota is a Bloomberg Opinion columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.

Top News / World+Biz / Global Economy

Stagflation / inflation / Fed rate hikes / Global economy

Comments

While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.

Top Stories

  • Photo: Collected
    Economic slump drags down growth in VAT collection from big cos
  • It's corruption that bites business harder: CPD
    It's corruption that bites business harder: CPD
  • Import slowdown to affect economic growth: ADB country head
    Import slowdown to affect economic growth: ADB country head

MOST VIEWED

  • Getting gas to India will be even more costly than laying this pipe to China.Photographer: Andrey Rudakov/Bloomberg
    Russia can't replace the energy market Putin broke
  • Good at ducking.Photographer: David Hecker/Getty Images
    Forget 'autonomy': Europe needs the US as much as ever
  • Photo: Bloomberg
    India state insurer doubles down on Adani amid short seller row
  • Illustration: Itziar Barrio
    Adani faces one of worst billionaire wipeouts with empire under siege
  • Illustration: Itziar Barrio
    What to know about the fight between Asia’s richest man and Hindenburg
  •  Gautam Adani, center.Photographer: Tomohiro Ohsumi/Bloomberg
    What really worries Indians about Adani's empire

Related News

  • Is a US recession near? Making the call is trickier than ever
  • What does inflation have in store for businesses?
  • UN forecasts fall in global economic growth to 1.9% in 2023
  • As inflation soars, Egyptians offered loans to buy books
  • Shipping-cost drop a 'smoking gun' foretelling inflation to cool

Features

Nandita Sharmin's journey to give organic skincare a new identity

Nandita Sharmin's journey to give organic skincare a new identity

18h | Mode
Illustration: TBS

'The silver lining is that the worst is sort of behind us': Hamid Rashid, UN economist

22h | Panorama
Photo: Bloomberg

BuzzFeed and AI are a match made in fad city

21h | Panorama
Snipe in flight. Photo: Enam Ul Haque

Baikka Beel: 'A world where snipe work late'

1d | Panorama

More Videos from TBS

Sarika Sabrin is waiting for a good film

Sarika Sabrin is waiting for a good film

12h | TBS Entertainment
Take your football game to the next level at Next Level academy

Take your football game to the next level at Next Level academy

13h | TBS SPORTS
“Investments risky without consistent policy, reliable data”- SK Bashir Uddin

“Investments risky without consistent policy, reliable data”- SK Bashir Uddin

15h | TBS Round Table
What does Shahrukh has in his 770 million dollar property?

What does Shahrukh has in his 770 million dollar property?

1d | TBS Entertainment

Most Read

1
Picture: Collected
Bangladesh

US Embassy condemns recent incidents of visa fraud

2
Illustration: TBS
Banking

16 banks at risk of capital shortfall if top 3 borrowers default

3
Photo: Collected
Splash

Hansal Mehta responds as Twitter user calls him 'shameless' for making Faraaz

4
A frozen Beyond Burger plant-based patty. Photographer: AKIRA for Bloomberg Businessweek
Bloomberg Special

Fake meat was supposed to save the world. It became just another fad

5
Bapex calls candidates for job test 9 years after advert!
Bangladesh

Bapex calls candidates for job test 9 years after advert!

6
Representational Image
Banking

Cash-strapped Islami, Al-Arafah and National turn to Sonali Bank for costly fund

EMAIL US
contact@tbsnews.net
FOLLOW US
WHATSAPP
+880 1847416158
The Business Standard
  • About Us
  • Contact us
  • Sitemap
  • Privacy Policy
  • Comment Policy
Copyright © 2023
The Business Standard All rights reserved
Technical Partner: RSI Lab

Contact Us

The Business Standard

Main Office -4/A, Eskaton Garden, Dhaka- 1000

Phone: +8801847 416158 - 59

Send Opinion articles to - oped.tbs@gmail.com

For advertisement- sales@tbsnews.net