The Great Recession and the Inflation Puzzle
13 Pages Posted: 18 Jun 2013
Date Written: May 2013
Abstract
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.
Keywords: Economic recession, United States, Inflation, Economic models, inflation, Unemployment, Phillips Curve, price inflation, inflation dynamics, monetary fund, monetary policy, inflation targeting, gdp deflator, relative price, inflation rate
JEL Classification: C53, E37
Suggested Citation: Suggested Citation