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Still Minding the Gap

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Author Info

  • André Meier

Abstract

This paper studies inflation dynamics during 25 historical episodes in advanced economies where output remained well below potential for an extended period. We find that such episodes generally brought about significant disinflation, underpinned by weak labor markets, slowing wage growth, and, in many cases, falling oil prices. Indeed, inflation declined by about the same fraction of the initial inflation rate across episodes. That said, disinflation has tended to taper off at very low positive inflation rates, arguably reflecting downward nominal rigidities and well-anchored inflation expectations. Temporary inflation increases during episodes were, in turn, systematically related to currency depreciation or higher oil prices. Overall, the historical patterns suggest little upside inflation risk in advanced economies facing the prospect of persistent large output gaps.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/189.

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Length: 36
Date of creation: 01 Aug 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/189

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Related research

Keywords: Inflation; Disinflation; Deflation; Production; Exchange rates; Inflation rates; Labor markets; Oil prices; monetary policy; inflation dynamics; low inflation; inflation rate; central bank; monetary economics; money growth; rates of inflation; monetary policies; monetary stance; price level; monetary fund; price inflation; change in inflation; aggregate demand; rising inflation; money supply; average inflation; high inflation; rate of inflation; price stability; inflationary pressure; wage inflation; inflation targeting; rise in inflation; actual inflation; real wages; steady-state ? inflation; lower inflation; rational expectations; average inflation rate; inflationary pressures; optimal monetary policy; monetary aggregates; measure of inflation; steady-state inflation;

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  1. Emmanuel De Veirman, 2009. "What Makes the Output-Inflation Trade-Off Change? The Absence of Accelerating Deflation in Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(6), pages 1117-1140, 09.
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Cited by:
  1. Roland Döhrn & Philipp an de Meulen & Tobias Kitlinski & Torsten Schmidt & Simeon Vosen, 2010. "Die wirtschaftliche Entwicklung im Ausland zur Jahresmitte 2010 - Der erste Schwung ist vorüber," RWI Konjunkturbericht, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 32, 09.
  2. Jaromir Baxa & Miroslav Plasil & Borek Vasicek, 2013. "Inflation and the Steeplechase Between Economic Activity Variables," Working Papers 2013/15, Czech National Bank, Research Department.
  3. Roland Döhrn & Tobias Kitlinski & Martin Micheli & Torsten Schmidt & Simeon Vosen & György Barabas & Heinz Gebhardt & Lina Zimmermann, 2010. "Die wirtschaftliche Entwicklung im Inland zur Jahresmitte 2010 - Aufschwung verliert an Fahrt," RWI Konjunkturbericht, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 46, 09.
  4. 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.

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