![]() But I argued that, in addition to excessive aggregate demand, several negative aggregate supply shocks were contributing to rising inflation – indeed, to stagflation (reduced growth alongside higher inflation). That demand was driven by three forces: persistently loose monetary policies, excessively stimulative fiscal policies, and a rapid accumulation of household savings during the pandemic, which led to pent-up demand once economies reopened. ![]() El-Erian of Queens’ College at the University of Cambridge, and other economists – argued that inflation would remain high, because the economy was overheating from excessive aggregate demand. Summers of Harvard University, Mohamed A. Meanwhile, “Team Persistent” – led by Lawrence H. Key central banks and most Wall Street researchers were on “Team Transitory.” They attributed the problem to base effects and temporary supply bottlenecks, implying that the high inflation rate would rapidly fall back to central banks’ 2% target range. NEW YORK – In 2021, the big debate about the outlook for the global economy focused on whether the rising inflation in the United States and other advanced economies was transitory or persistent. ![]()
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