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The Great Recession and the inflation puzzle

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  • Matheson, Troy
  • Stavrev, Emil

Abstract

Notwithstanding 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.

Suggested Citation

  • Matheson, Troy & Stavrev, Emil, 2013. "The Great Recession and the inflation puzzle," Economics Letters, Elsevier, vol. 120(3), pages 468-472.
    • Handle: RePEc:eee:ecolet:v:120:y:2013:i:3:p:468-472
    DOI: 10.1016/j.econlet.2013.06.001
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    References listed on IDEAS

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    1. Laurence Ball & Sandeep Mazumder, 2011. "Inflation Dynamics and the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 337-405.
    2. James H. Stock & Mark W. Watson, 2010. "Modeling inflation after the crisis," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 173-220.
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    More about this item

    Keywords

    Inflation; Unemployment; Phillips curve;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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