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Is the Phillips Curve Alive and Well after All? Inflation Expectations and the Missing Disinflation

Listed author(s):
  • Olivier Coibion
  • Yuriy Gorodnichenko

We evaluate explanations for the absence of disinflation during the Great Recession and find popular explanations to be insufficient. We propose a new explanation for this puzzle within the context of a standard Phillips curve. If firms' inflation expectations track those of households, then the missing disinflation can be explained by the rise in their inflation expectations between 2009 and 2011. We present new econometric and survey evidence consistent with firms having similar expectations as households. The rise in household inflation expectations from 2009 to 2011 can be explained by the increase in oil prices over this time period. (JEL D84, E24, E32, E52, E58, Q35)

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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 7 (2015)
Issue (Month): 1 (January)
Pages: 197-232

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Handle: RePEc:aea:aejmac:v:7:y:2015:i:1:p:197-232
Note: DOI: 10.1257/mac.20130306
Contact details of provider: Web page: https://www.aeaweb.org/aej-macro
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