Inflation: mind the gap
AbstractThis Economic Letter examines recent evidence concerning the connection between unemployment and inflation. We argue that, in a deep economic downturn such as the current one, inflation and unemployment do tend to move together in a manner consistent with the Phillips curve. But, outside of such severe recessions, fluctuations in the inflation and unemployment rates do not line up particularly well. Inflation appears to be buffeted by many other factors. This explains why some studies find only a "loose empirical relationship" between economic slack and inflation. Thus, compared with the relatively tranquil period between the mid-1980s and the mid-2000s, evidence suggests that recent high unemployment rates are broadly consistent with the sizable decline in core inflation since the fourth quarter of 2007, a relationship that broadly fits the Phillips curve model.
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Bibliographic InfoArticle provided by Federal Reserve Bank of San Francisco in its journal FRBSF Economic Letter.
Volume (Year): (2010)
Issue (Month): jan19 ()
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- Glenn D. Rudebusch & Lars E. O. Svensson, 1998.
"Policy rules for inflation targeting,"
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- Richard Peach & Robert Rich & Anna Cororaton, 2011. "How does slack influence inflation?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 17(June).
- Fröhling, Annette & Lommatzsch, Kirsten, 2011. "Output sensitivity of inflation in the euro area: Indirect evidence from disaggregated consumer prices," Discussion Paper Series 1: Economic Studies 2011,25, Deutsche Bundesbank, Research Centre.
- Jens Christensen, 2010. "TIPS and the risk of deflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct25.
- Sell, Friedrich L. & Reinisch, David C., 2013. "How do Beveridge and Phillips curves in the euro area behave under the stress of the world economic crisis?," Working Papers in Economics 2013,1, Universität der Bundeswehr München, Economic Research Group.
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