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A Possible Explanation Of The Missing Deflation Puzzle

Author

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  • Engin Kara
  • Ahmed Pirzada

Abstract

Following the Great Recession, despite large and persistent slowdown in economic activity, the fall in inflation was modest. This is known as the missing deflation puzzle. In this paper, we develop and estimate a New Keynesian model to provide an explanation for the puzzle. The new model allows for time‐varying volatility in cross‐sectional idiosyncratic uncertainty and accounts for changes in intermediate input prices. We show that inflation did not fall much because intermediate input prices were increasing. (JEL E31, E32, E52)

Suggested Citation

  • Engin Kara & Ahmed Pirzada, 2020. "A Possible Explanation Of The Missing Deflation Puzzle," Economic Inquiry, Western Economic Association International, vol. 58(1), pages 361-373, January.
    • Handle: RePEc:bla:ecinqu:v:58:y:2020:i:1:p:361-373
    DOI: 10.1111/ecin.12839
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    Cited by:

    1. Melina, Giovanni & Villa, Stefania, 2023. "Drivers of large recessions and monetary policy responses," Journal of International Money and Finance, Elsevier, vol. 137(C).
    2. Ahmed Jamal Pirzada, 2017. "Energy Price Uncertainty and Decreasing Pass-through to Core Inflation," Bristol Economics Discussion Papers 17/681, School of Economics, University of Bristol, UK, revised 30 May 2017.
    3. Ahmed Jamal Pirzada, 2017. "Price Stickiness and Intermediate Materials Prices," Bristol Economics Discussion Papers 17/686, School of Economics, University of Bristol, UK.
    4. Massenot, Baptiste & Nghiem, Giang, 2019. "Depressed demand and supply," SAFE Working Paper Series 257, Leibniz Institute for Financial Research SAFE.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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