Accounting for Post-Crisis Inflation and Employment: A Retro Analysis

43 Pages Posted: 23 Jan 2015

See all articles by Chiara Fratto

Chiara Fratto

University of Chicago

Harald Uhlig

University of Chicago - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 2014

Abstract

Why was there no deflation and what accounts for inflation after 2008? We use the prominent pre-crisis Smets-Wouters (2007) model to address this question. We find that due to price markup shocks alone inflation would have been 1%higher than observed and 0.5% higher that the long-run average. Their standard deviation is similar to its pre-crisis level. Price markup shocks were also responsible for the slow recovery of employment, though not for the initial drop. Monetary policy shocks predict an inflation rate 0.5% below average. Government expenditure innovations do not contribute much either to inflation or to employment dynamics.

JEL Classification: E31, E32, E52

Suggested Citation

Fratto, Chiara and Uhlig, Harald, Accounting for Post-Crisis Inflation and Employment: A Retro Analysis (December 2014). CEPR Discussion Paper No. DP10306, Available at SSRN: https://ssrn.com/abstract=2554381

Chiara Fratto (Contact Author)

University of Chicago

Harald Uhlig

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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