The Great Recession and the Inflation Puzzle
May 22, 2013
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Summary
Notwithstanding persistently-high unemployment following the Great Recession, inflation in the United States has been remarkably stable. We find that a traditional Phillips curve describes the behavior of inflation reasonably well since the 1960s. Using a non-linear Kalman filter that allows for time-varying parameters, we find that three factors have contributed to the observed stability of inflation: inflation expectations have become better anchored and to a lower level; the slope of the Phillips curve has flattened; and the importance of import-price inflation has increased.
Subject: Financial crises, Global financial crisis of 2008-2009, Hyperinflation, Import prices, Inflation, Labor, Prices, Unemployment, Unemployment rate
Keywords: Global financial crisis of 2008-2009, Hyperinflation, Import prices, import-price inflation, Inflation, inflation expectation, inflation in the United States, inflation puzzle, Phillips Curve, Unemployment, Unemployment rate, WP, year-over-year headline CPI inflation
Pages:
12
Volume:
2013
DOI:
Issue:
124
Series:
Working Paper No. 2013/124
Stock No:
WPIEA2013124
ISBN:
9781484334720
ISSN:
1018-5941
