Author information:
Balázs Spéder: Magyar Nemzeti Bank, Head of Department; John Von Neumann University, Lecturer; University of Pécs, PhD Student. E-mail: spederb@mnb.hu
Balázs Vonnák: Magyar Nemzeti Bank, Senior Education and Research Expert; John Von Neumann University, Associate Professor. E-mail: vonnakb@mnb.hu
Abstract:
In our study, we examine the circumstances under which major inflation shocks lead to persistently high inflation. For our analysis, we use macroeconomic data from a broad sample of countries for the past fifty years or more. We identify several cases where inflation rises from the single-digit range to above 20 per cent, followed by successful disinflation within two years. Similarly, there are many examples where inflation remains high after an initial shock. The former cases are characterised by more pronounced increases in interest rates during inflation shocks, more disciplined fiscal policy and favourable commodity price developments. Examining the same sample, we also show that the disinflation after a period of persistently high inflation was not typically accompanied by a significant slowdown in the real economy and instead was often followed by higher economic growth. In the disinflationary episodes we identified, the size of the real cost of disinflation is negatively correlated with the central bank independence, suggesting that a disinflationary commitment played a positive role.
Cite as (APA):
Spéder, B., & Vonnák, B. (2023). Inflation Shocks and Disinflation: Stylised Facts from the Past 50 Years. Financial and Economic Review, 22(3), 26–47. https://doi.org/10.33893/FER.22.3.26
Column:
Study
Journal of Economic Literature (JEL) codes:
E31, E63, N10
Keywords:
inflation, stabilisation, monetary policy, central bank independence
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