{
  "title": "Still Minding the Gap—Inflation Dynamics during Episodes of Persistent Large Output Gaps",
  "publication": "IMF Working Papers, August 1, 2010",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/still-minding-the-gap-inflation-dynamics-during-episodes-of-persistent-large-output-gaps-24144",
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  "summary": "This paper studies inflation dynamics during 25 historical episodes in advanced economies where output remained well below potential for an extended period.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Study of inflation dynamics during 25 historical episodes in advanced economies where output remained well below potential for an extended period.\n- Paper author: Andre Meier.\n- Publication date: August 1, 2010.\n- Format: IMF Working Papers, Working Paper No. 2010/189."
    },
    {
      "heading": "Key findings",
      "content": "- Episodes generally brought about significant disinflation.\n- Disinflation was underpinned by:\n  - weak labor markets,\n  - slowing wage growth,\n  - and, in many cases, falling oil prices.\n- Inflation declined by about the same fraction of the initial inflation rate across episodes.\n- Disinflation has tended to taper off at very low positive inflation rates, arguably reflecting downward nominal rigidities and well-anchored inflation expectations.\n- Temporary inflation increases during episodes were systematically related to:\n  - currency depreciation,\n  - or higher oil prices.\n- Overall conclusion: historical patterns suggest little upside inflation risk in advanced economies facing the prospect of persistent large output gaps."
    },
    {
      "heading": "Mechanisms and dynamics",
      "content": "- Labor market slack and slowing wage growth were central to the disinflationary process.\n- Oil price movements contributed materially to episode-to-episode variation in inflation outcomes.\n- Exchange rate depreciation acted as a driver of temporary inflation increases during these episodes.\n- Downward nominal rigidities and well-anchored inflation expectations likely limited disinflation once inflation reached very low positive levels."
    },
    {
      "heading": "Policy implications",
      "content": "- Advanced-economy policymakers facing persistent large output gaps can expect:\n  - significant disinflationary pressures stemming from weak labor markets and slowing wages,\n  - limited upside inflation risk absent large oil price shocks or currency depreciations,\n  - potential stabilization of inflation at low positive rates due to nominal rigidities and anchored expectations.\n- Monitoring oil prices and exchange rate developments is important for assessing temporary inflationary risks during prolonged output gaps.\n\n---\n\n Content in this bundle\n\n- wp10189\n  - wp10189 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp10189 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/still-minding-the-gap-inflation-dynamics-during-episodes-of-persistent-large-output-gaps-24144"
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    "Authors: Andre Meier",
    "Published: August 1, 2010",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781455202232.001",
    "Study of inflation dynamics during 25 historical episodes in advanced economies where output remained well below potential for an extended period.",
    "Paper author: Andre Meier.",
    "Publication date: August 1, 2010.",
    "Format: IMF Working Papers, Working Paper No. 2010/189.",
    "Episodes generally brought about significant disinflation.",
    "Disinflation was underpinned by:",
    "Inflation declined by about the same fraction of the initial inflation rate across episodes.",
    "Disinflation has tended to taper off at very low positive inflation rates, arguably reflecting downward nominal rigidities and well-anchored inflation expectations.",
    "Temporary inflation increases during episodes were systematically related to:",
    "Overall conclusion: historical patterns suggest little upside inflation risk in advanced economies facing the prospect of persistent large output gaps.",
    "Labor market slack and slowing wage growth were central to the disinflationary process.",
    "Oil price movements contributed materially to episode-to-episode variation in inflation outcomes.",
    "Exchange rate depreciation acted as a driver of temporary inflation increases during these episodes.",
    "Downward nominal rigidities and well-anchored inflation expectations likely limited disinflation once inflation reached very low positive levels.",
    "Advanced-economy policymakers facing persistent large output gaps can expect:",
    "Monitoring oil prices and exchange rate developments is important for assessing temporary inflationary risks during prolonged output gaps.",
    "**_wp10189**"
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