The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Olivier Blanchard, Eugenio Cerutti, and Lawrence Summers
INTERNATIONAL MONETARY FUND
We explore two issues triggered by the crisis. First, in most advanced countries, output
remains far below the pre-recession trend, suggesting hysteresis. Second, while inflation has
decreased, it has decreased less than anticipated, suggesting a breakdown of the relation
between inflation and activity. To examine the first, we look at 122 recessions over the past
50 years in 23 countries. We find that a high proportion of them have been followed by lower
output or even lower growth. To examine the second, we estimate a Phillips curve relation
over the past 50 years for 20 countries. We find that the effect of unemployment on inflation,
for given expected inflation, decreased until the early 1990s, but has remained roughly stable
since then. We draw implications of our findings for monetary policy.