Panelists: John F. Cochrane, the Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution
Moderator: Valerie Ramey, the Thomas Sowell Senior Fellow at the Hoover Institution
Economic Policy Working Group co-organizers John Cochrane and Valerie Ramey hosted a panel on “Inflation”. This talk tries to compress 20 years of thinking about inflation into a digestible hour. John Cochrane covers how the 2021 inflation resulted from a fiscal shock, via the fiscal theory of the price level. This theory says debt and deficits cause inflation when people do not have faith they will be repaid, prompting them not to hold the debt as savings, but to try to spend it instead. He interprets 2021 in that light and shows how the simple fiscal theory model of a fiscal shock and monetary response accounts well for the episode. He contrasts fiscal theory with the other known theories: relative price shocks, monetarism, Old-Keynesian and New-Keynesian theories. The contrast between quantitative easing (QE) and COVID spending, and the long quiet zero bound are decisive experiments distinguishing the theories. Fiscal theory is the only known economic theory of inflation consistent with current institutions and these experiments. He goes on to the question: How do higher interest rates lower inflation? There is a chasm between conventional policy doctrine – higher rates lower demand, which lowers output and via the Phillips curve inflation – and how the equations of all economic models since 1990 behave. According to him, we still do not have a simple economic model in which higher interest rates lower inflation going forward, but he shows a few ingredients that help to bridge the gap.
To view the slides click here
WATCH THE SEMINAR
Topic: Panel on Inflation
Start Time: October 15, 2025, 12:15 PM PT
PARTICIPANTS
John Cochrane, Valerie Ramey, John Taylor, Joshua Aizenman, Annelise Anderson, Cecile Bastidon, Michael Bordo, Michael Boskin, David Brady, Oliver Bush, Pedro Carvalho, Tom Church, Roberto Corrao, Steve Davis, Sami Diaf, Robert Fluegge, Nate Foust, Jared Franz, Patrick Gaynor, Nick Gebbia, Lance Gilliland, John Gunn, George Hall, Eric Hanushek, Jonathan Hartley, Magnus Henrekson, Robert Hetzel, Laurie Hodrick, Robert Hodrick, Otmar Issing, Ken Judd, Matthew Kahn, Mervyn King, Evan Koenig, Don Kosh, David Laidler, Ross Levine, Mickey Levy, Manuela Magalhaes, Jim Mattis, Sean McEwen, Axel Merk, David Neumark, David Papell, Flavio Rovida, Sergey Sanovich, Paola Sapienza, Paul Schmelzing, JR Scott, Siddharth Gundapaneni, Pierre Siklos, Jeffrey Smith, Abe Sofaer, Richard Sousa, Jack Tatom, Araha Uday, Victor Valcarcel, Mike Wu, Alexander Zentefis
