For example, in summer last year, this framework could have been used to present different scenarios for the two clear narratives regarding inflation: persistent vs transitory. The first scenario would have assumed inflation was more persistent, requiring faster policy normalization.
In contrast, the transitory scenario would have assumed that inflation was purely supply-driven and the inflation pressures were temporary, and therefore, the central bank would be committed to supporting an economy still recovering from COVID. This framework might have helped major central banks to better manage the constraints on monetary policy during the recent transition from a low- to highinflation environment.