[Economics] Bernanke and Blanchard’s Obsession with the Wage-Price Spiral

[GL HERO SHIMA]

Bernanke and Blanchard have made another failed attempt to salvage establishment macroeconomics after the massive onslaught of adverse inflationary circumstances with which it could evidently not contend.

hree years have passed since inflation began its surge in Spring 2021, which continued until early 2023. As the inflation rate has since begun a hesitant decline, the time has come to look back at and reflect on what has happened during these challenging years. A recent evaluation of the causes of U.S. pandemic inflation comes from Ben Bernanke and Olivier Blanchard (2023), who (in their own words) use a simple dynamic model of wage-price determination to explain the sharp acceleration in U.S. inflation during 2021-2023. The Bernanke and Blanchard model analysis provides a representative specimen of the approach taken by establishment economists to the recent inflationary crisis, as it includes everything important that is problematic about New Keynesian macroeconomics.

Prominent central bankers, including Federal Reserve Chair Jerome Powell[1] and ECB President Christine Lagarde[2], take a rather different view when they state that their policy rate decisions, in these turbulent and uncertain times, are based on a data-driven approach, and not on standard macro models or monetary policy rules derived from these standard models. These central bankers are clear that standard macro models are of little use to them in the current macroeconomic environment that is particularly fluid economically and politically at domestic and global levels (Ferguson and Storm 2023).

https://www.ineteconomics.org/perspectives/blog/bernanke-and-blanchards-obsession-with-the-wage-price-spiral