Explaining the Recent Behavior of Inflation and Unemployment in the United States
September 1, 1998
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Summary
Low rates of inflation have been recorded in recent years, despite a decline in the unemployment rate. This phenomenon could be the result of a series of transitory shocks or of a permanent change in the structure of the economy leading to a lower NAIRU. The paper suggests that, while the NAIRU may have fallen slightly, it has not fallen by an amount sufficient to explain the recent behavior of inflation. A leading explanation for recent inflation performance appears to be favorable price shocks; in particular, the cost of imports has fallen sharply as the dollar has appreciated.
Subject: Import prices, Inflation, Labor, Labor costs, Prices, Unemployment, Unemployment rate
Keywords: Import prices, Inflation, inflation performance, inflation variable, Labor costs, NAIRU equation, natural rate of unemployment, overpredict inflation, overpredicts inflation, Phillips curve, reason inflation, Unemployment, unemployment gap, Unemployment rate, variable, WP
Pages:
17
Volume:
1998
DOI:
Issue:
145
Series:
Working Paper No. 1998/145
Stock No:
WPIEA1451998
ISBN:
9781451856514
ISSN:
1018-5941
