Wanted: radical ideas for inflation modelling
Hedge funds echo Mervyn King’s calls for a new approach to inflation modelling post-2022 crisis
Why did nobody see it coming?
This famously straightforward question – posed by Queen Elizabeth about the 2008 financial crisis – could equally be demanded of the inflation crisis of 2022.
Central bank models had forecast a brief and ‘transitory’ inflation spike in the wake of the Covid pandemic and the various multi-billion-dollar stimulus packages put in place to help western economies. The monetary response remained relaxed and the post-2008 era of loose policy continued through 2021.
The
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