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The Great Recession and the Inflation Puzzle
Author:
Mr. Troy D Matheson
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Mr. Emil Stavrev
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Series:
IMF Working Papers
Volume/Issue:
Volume 2013: Issue 124
Language:
English
Publication Date:
22 May 2013
DOI:
https://doi.org/10.5089/9781484334720.001
ISBN:
9781484334720
ISSN:
1018-5941
Pages:
12
Keywords:
WP; inflation expectation; Inflation; Unemployment; Phillips Curve; import-price inflation; year-over-year headline CPI inflation; inflation puzzle; inflation in the United States; Global financial crisis of 2008-2009; Hyperinflation; Import prices; Unemployment rate
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2013: Issue 124