The Determinants of Inflation
By William Kinlaw, Mark Kritzman, Michael Metcalfe, David Turkington
Sep 5, 2023

By William Kinlaw, Mark Kritzman, Michael Metcalfe, and David Turkington


Published in the Journal of Investment Management, Third Quarter 2023 and recipient of the 2023 Harry Markowitz Award.


We use novel statistical techniques to measure the time-varying influence of cost push, demand pull, inflation expectations, monetary policy, and fiscal policy on inflation regimes. 


It can be hard to pin down what causes inflation, and often a range of views are put forth. The shifting nature of inflation regimes makes this challenge even more daunting. In our latest research we take a data-driven view of the key drivers of inflation, comparing the economic circumstances at any point in time to those that prevail during various historical regimes. We identify four prototypical inflation regimes: stable, rising steady, rising volatile, and disinflation. And we apply a method originally introduced for predicting the business cycle to disentangle and attribute the determinants of U.S. inflation to eight macroeconomic variables. The results are intuitive and carry interesting policy implications. As of early 2022, fiscal spending stands out as the main determinant of the current inflation regime. 



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