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Trend Inflation and the Unemployment Volatility Puzzle

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  • Sergio A. Lago Alves

Abstract

I show that the combination of small positive trend inflation with staggered prices may account for the large relative volatilities found in US labor market data. The model does not have any wage rigidity and is hit only by an aggregate technology shock. The calibration procedure uses standard parameter values. Controlling for the sample average of the CPI inflation rate and the degree of price stickiness, the model solves the Shimer (2005) puzzle and explains the volatilities observed during two important sample periods: full sample (1951-2005) and Great Moderation (1985-2005).

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Bibliographic Info

Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 277.

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Date of creation: May 2012
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Handle: RePEc:bcb:wpaper:277

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Citations

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Cited by:
  1. Angelo Marsiglia Fasolo, 2012. "A Note on Particle Filters Applied to DSGE Models," Working Papers Series 281, Central Bank of Brazil, Research Department.
  2. Papadimitriou, Theophilos & Gogas, Periklis & Tabak, Benjamin M., 2013. "Complex networks and banking systems supervision," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(19), pages 4429-4434.
  3. Bruno Martins, 2012. "Local Market Structure and Bank Competition: evidence from the Brazilian auto loan market," Working Papers Series 299, Central Bank of Brazil, Research Department.
  4. Waldyr Areosa & Marta Areosa, 2012. "Information (in) Chains: information transmission through production chains," Working Papers Series 286, Central Bank of Brazil, Research Department.
  5. Sergio A. Lago Alves, 2013. "Is the Divine Coincidence Just a Coincidence? The Implications of Trend Inflation," Working Papers Series 329, Central Bank of Brazil, Research Department.

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