there really is no policy to easily get out of stagflation, thats why it sucks it can only be avoided, with more responsible monetary/debt policies in the first place - stagflation is the consequence for failing
I don't think our current situation qualifies as stagflation. We have GDP growth of 2-3 % and inflation in the same range. Ironically, the same force that is holding down inflation in the US, the ready availability of cheap foreign goods, is beginning to foster inflation through increased demand for oil/gas and minerals. As for the question raised by this thread, there is no magic monetary bullet for stagflation. Inflation really is only a concern to the extent it is caused by excessive money growth. Otherwise, it is merely the working of the market system, which directs resource allocation through price signals. Should the Federal Reserve try to counteract price increases in the energy sector, for example, by throwing the economy into a recession? It would be just as effective to enact protectionist trade legislation and throw the Chinese economy into a deep recession, thereby curtailing their energy demand. Bottom line, the Fed can most efectively deal with problems it has created.
"It would be just as effective to enact protectionist trade legislation and throw the Chinese economy into a deep recession, thereby curtailing their energy demand." Hmmm, didn't think about that - until now - good looking out.
Hands off policy works well and let the markets find efficiency and don`t forget to thread the needle. Akuma