A ‘back to Keynes’ macroeconomic model that can see inflation coming - predicting the inflation spike during the covid crisis

From the paper

Abstract

Why Did (Almost) No One See the Inflation Coming? asked Jason Furman in a 2022 paper which raised the key question of why economic models and forecasters failed to forsee the inflation spike that occurred in 2021-22. This failure was based on the current crop of standard macroeconomic models; we show how a model in the emerging ABM tradition (the SHD model), based on Keynes original but unformalized concepts, responds to the type of shocks and government stimulus which occurred during the covid crisis.Unlike current forecasting models we find that the SHD model does predict a spike in inflation similar to that actually observed, and of similar short duration. We discuss the outputs and uses of this type of model and its potential to bridge the gap between theory based and practical macroeconomic forecasting models