Research Interests: Macro / Monetary / Financial Economics
Current Research Topics: Inflation / CBDC
Professional Background: Corporate Banker (5 years)
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Mechanism image: Pent-up demand
Inflation Path: Numerical Example
The goal of this study is to better understand the drivers of inflation dynamics by, for instance, starting with supply disruptions such as pandemics and geopolitical conflicts. To this end, I have constructed a model where “pent-up demand” occurs endogenously. The paper adopts household preferences where postponed consumption increases the period specific marginal utility of consumption, and hence demand for consumption rises over time. If the consumption is suppressed below certain level, inflation remains above the stationary level due to the endogenously induced “pent-up demand”. The main contribution this paper makes is its formalization of the pent-up demand for non-durable goods and novel explanation of inflation, which departs from the typical nominal rigidity assumptions. The study indicates that policymakers should take into consideration that, a supply restoration may not result in an immediate resolution of inflation due to the pent-up demand, however, inflation eventually dissipates even without any intervention.