https://macropaperwarehouse.com/authors/james-bullard/James BullardHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/soft-landing-and-inflation-scares/https://macropaperwarehouse.com/papers/soft-landing-and-inflation-scares/<p><strong>Research Question</strong></p> <p>Why did the 2021–2023 US inflation surge end in a soft landing — disinflation without a major recession — while the Volcker disinflation of 1979–1987 required substantial output losses? And was the timing and strength of the Federal Reserve&rsquo;s reaction to the inflation surge decisive in achieving this outcome?</p> <p><strong>Methodology and Model</strong></p> <p>The paper develops and estimates a micro-founded Heterogeneous-Expectation New Keynesian (HENK) model in which agents hold idiosyncratic, dispersed beliefs about the long-run (steady-state) level of inflation. The key departure from full-information rational expectations (FIRE) is that information about the long-run value of inflation is dispersed and sticky: agents update their beliefs through pairwise social learning (SL), adopting the forecasting model of the agent whose belief produced lower recent inflation forecast errors. This tournament process — inspired by genetic algorithms — generates a time-varying cross-sectional distribution of subjective inflation beliefs.</p>