From Transitory to Record-Breaking

This paper will examine why economists overlooked the largest increase in inflation in the past four decades. First, it will quickly summarize the fiscal and monetary responses to the COVID pandemic. Second, adhering to the quantity theory of money and a 1984 paper by Frederic Mishkin on the causes of inflation, it will review the causes of an increase in the price level. Finally, it will conclude that many economists missed the recent rise in inflation because of the failure of inflation to materialize after quantitative easing during the Great Recession and overconfidence in the skills of central bankers to avoid inflation and maintain the status quo of the "Great Moderation."