Monetary policy across inflation regimes
Abstract
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.
Fields of Study & Subjects
Monetary Policy and Economic Impact
Global Financial Crisis and Policies
Economic Theory and Policy
Publication details
- Journal / source
- European Economic Review
- Publisher
- Elsevier BV
- Volume
- 185
- Pages
- 105322–105322
- Publication date
- 10 April 2026
- Language
- EN