Authors: Valeria Gargiulo, Christian Matthes, and Katerina Petrova
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Staff Reports
Monetary Policy across Inflation Regimes
Number 1083
January 2024 Revised August 2024
January 2024 Revised August 2024
JEL classification: C11, C12, C22
Does the effect of monetary policy depend on the prevailing level of inflation? In order to answer this question, we construct a parsimonious nonlinear time series model that allows for inflation regimes. We find that the effects of monetary policy are markedly different when year-over-year inflation exceeds 5.5 percent. Below this threshold, changes in monetary policy have a short-lived effect on prices, but no effect on the unemployment rate, giving a potential explanation for the recent “soft landing” in the United States. Above this threshold, the effects of monetary policy surprises on both inflation and unemployment can be larger and longer lasting.
Author Disclosure Statement(s)
Valeria Gargiulo, Christian Matthes, and Katerina Petrova
The authors declare that they have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
The authors declare that they have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Suggested Citation:
Gargiulo, Valeria, Christian Matthes, and Katerina Petrova. 2024. “Monetary Policy across Inflation Regimes.” Federal Reserve Bank of New York Staff Reports, no. 1083, January. https://doi.org/10.59576/sr.1083
Gargiulo, Valeria, Christian Matthes, and Katerina Petrova. 2024. “Monetary Policy across Inflation Regimes.” Federal Reserve Bank of New York Staff Reports, no. 1083, January. https://doi.org/10.59576/sr.1083
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