One Hundred Inflation Shocks: Seven Stylized Facts

IMF Working Papers, September 15, 2023

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Authors: Anil Ari, Carlos Mulas-Granados, Victor Mylonas, Lev Ratnovski, Wei Zhao
Published: September 15, 2023
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798400254369.001

The paper identifies over 100 inflation shock episodes in 56 countries since the 1970s, including over 60 episodes linked to the 1973–79 oil crises.
Only in 60 percent of the episodes was inflation brought back down (or “resolved”) within 5 years.
Even in these “successful” cases, resolving inflation took, on average, over 3 years.
Success rates were lower and resolution times longer for episodes induced by terms-of-trade shocks during the 1973–79 oil crises.
Most unresolved episodes involved “premature celebrations”, where inflation declined initially, only to plateau at an elevated level or re-accelerate.

Countries that resolved inflation had:
- tighter monetary policy that was maintained more consistently over time,
- lower nominal wage growth,
- less currency depreciation,

compared to unresolved cases.

Successful disinflations were associated with short-term output losses.
Successful disinflations were not associated with larger output, employment, or real wage losses over a 5-year horizon, potentially indicating the value of policy credibility and macroeconomic stability.