Geneva 26: The Art and Science of Patience: Relative prices and inflation

GENEVAREPORTSONTHEWORLDECONOMY 26 VeronicaGuerrieri,MichalaMarcussen,LucreziaReichlinandSilvanaTenreyro THEARTANDSCIENCEOFPATIENCE RELATIVEPRICESANDINFLATION ICMBINTERNATIONALCENTER FORMONETARYANDBANKINGSTUDIES CIMBCENTREINTERNATIONAL D’ETUDESMONETAIRES ETBANCAIRES THEARTANDSCIENCEOFPATIENCE RELATIVEPRICESANDINFLATION GenevaReportsontheWorldEconomy26 INTERNATIONALCENTERFORMONETARYANDBANKINGSTUDIES(ICMB) InternationalCenterforMonetaryandBankingStudies2,CheminEugène-Rigot 1202GenevaSwitzerland Tel:(4122)7349548 Fax:(4122)7333853 Web:www.icmb.ch ©2023InternationalCenterforMonetaryandBankingStudies CENTREFORECONOMICPOLICYRESEARCH CentreforEconomicPolicyResearch187boulevardSaint-Germain,1erétage75007Paris France 33GreatSuttonStreetLondonEC1V0DXUK Tel:+44(20)71838801 Fax:+44(20)71838820 Email:cepr@cepr.orgWeb:www.cepr.org ISBN:978-1-912179-79-4 THEARTANDSCIENCEOFPATIENCE RELATIVEPRICESANDINFLATION GenevaReportsontheWorldEconomy26 VeronicaGuerrieri ChicagoBoothandCEPR MichalaMarcussen SociétéGénérale LucreziaReichlin LondonBusinessSchoolandCEPR SilvanaTenreyro LondonSchoolofEconomics,CFMandCEPR ICMBINTERNATIONALCENTER FORMONETARYANDBANKINGSTUDIES CIMBCENTREINTERNATIONALD’ETUDESMONETAIRES ETBANCAIRES THEINTERNATIONALCENTERFORMONETARYANDBANKINGSTUDIES(ICMB) TheInternationalCenterforMonetaryandBankingStudies(ICMB)wascreatedin1973asanindependent,non-profitfoundation.ItisassociatedwithGeneva’sGraduateInstituteofInternationalandDevelopmentStudies.Itsaimistofosterexchangesofviewsbetweenthefinancialsector,centralbanksandacademicsonissuesofcommoninterest.Itisfinancedthroughgrantsfrombanks,financialinstitutionsandcentralbanks.TheCentersponsorsinternationalconferences,publiclectures,originalresearchandpublications.InassociationwithCEPR,theCenterhaspublishedtheGenevaReportsontheWorldEconomysince1999.Thesereportsattractconsiderableinterestamongpractitioners,policymakersandscholars. ICMBisnon-partisananddoesnottakeanyviewonpolicy.Itspublications,includingthepresentreport,reflecttheopinionsoftheauthors,notofICMBoranyofitssponsoringinstitutions.ThePresidentoftheFoundationBoardisJaimeCaruanaandtheDirectorisUgoPanizza. CENTREFORECONOMICPOLICYRESEARCH(CEPR) TheCentreforEconomicPolicyResearch(CEPR)isanetworkofover1,700researcheconomistsbasedmostlyinEuropeanuniversities.TheCentre’sgoalistwofold:topromoteworld-classresearch,andtogetthepolicy-relevantresultsintothehandsofkeydecision-makers.CEPR’sguidingprincipleis‘Researchexcellencewithpolicyrelevance’.ItwasfoundedintheUKin1983,whereitisaCharity,andinNovember2019CEPRinitiatedthecreationofanAssociationunderFrenchlaw,inordertoprovideavehicleforanexpansioninFrance.ThemembersoftheConseild’AdministrationoftheAssociationareidenticaltotheUKBoardofTrustees. CEPRisindependentofallpublicandprivateinterestgroups.IttakesnoinstitutionalstandoneconomicpolicymattersanditscorefundingcomesfromitsInstitutionalMembers,projectsthatitrunsandsalesofpublications.Becauseitdrawsonsuchalargenetworkofresearchers,itsoutputreflectsabroadspectrumofindividualviewpointsaswellasperspectivesdrawnfromcivilsociety.CEPRresearchmayincludeviewsonpolicy,buttheTrustees/membersoftheConseild’AdministrationoftheAssociationdonotgivepriorreviewtoitspublications.TheopinionsexpressedinthisreportarethoseoftheauthorsandnotthoseofCEPR. ChairoftheBoardSirCharlieBeanFounderandHonoraryPresidentRichardPortes PresidentBeatriceWederdiMauro VicePresidentsMaristellaBotticiniUgoPanizza MarReguantHélèneReyPhilippeMartin ChiefExecutiveOfficerTessaOgden Abouttheauthors VeronicaGuerrieriistheRonaldE.TarrsonProfessorofEconomicsandWilliardGrahamFacultyScholaratChicagoBooth.SheisalsoafellowoftheEconometric Society,aResearchAssociateattheNationalBureauofEconomicResearch,andaco-V directoroftheMacroInitiativeoftheBeckerFriedmanInstitute.ProfessorGuerrieriwasamanagingeditoroftheReviewofEconomicStudiesin2017-2021.SheisalsoanacademicmemberoftheBellagioGroupandaconsultantattheFederalReserveBankofChicago.In2021ProfessorGuerrieriwasaconsultantfortheItalianPrimeMinister.ProfessorGuerrieri’sworkfocusesonmacroeconomics,labourandfinancialmarkets,businesscycles,andgrowth.ShewontheBernácerPrizein2015forthebestEuropeaneconomistunder40inmacroeconomicsandfinance,theCarloAlbertomedalin2013forthebestItalianeconomistunder40,theAlfredP.SloanResearchFellowshipin2011,andtheExcellenceAwardinGlobalEconomicAffairsin2010fromtheKielInstitutefortheWorldEconomy.SheearnedaPhDinEconomicsattheMassachusettsInstituteofTechnologyandjoinedtheChicagoBoothfacultyin2006. MichalaMarcussenassumedtheroleofSocieteGenerale’sGroupChiefEconomistinSeptember2017andleadsateamofover35economistsandsectorengineersinherroleasHeadofEconomicandSectorResearchintheRiskDivision.ShehasbeenwiththeGroupsince1994andbeganhercareerwithDenDanskeBankin1986.ShehasworkedinCopenhagen,Brussels,LondonandParis.Withover30yearsofexperienceinthefinancialindustry,sheisafrequentcommentatorintheeconomicdebateandhasdoneextensiveworkonEuropeanintegration,thelong-termeconomicoutlook,fairvalueofinterestratesandpensionsavings.MichalaM