Is there an inflation puzzle?
Why has U.S. inflation failed to accelerate despite six years of continuing economic expansion. The authors investigate whether compensation growth has played a role, either as a temporary restraint on inflation or as the underlying source of a new inflation regime. They offer two pieces of evidence suggesting that compensation growth has in fact acted as a temporary curb on rising prices. First, they show that the forecasting performance of a traditional Phillips curve model begins to break down in late 1993. When a measure of compensation growth is incorporated, however, the stability of the model is restored. Second, they show that the slowdown in compensation growth appears to be temporary and was unusually severe from late 1992 to early 1995, a period that roughly coincides with the breakdown in their traditional model.
Volume (Year): (1997)
Issue (Month): Dec ()
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References listed on IDEAS
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- Cara S. Lown & Robert W. Rich, 1997. "Is there an inflation puzzle?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 51-77.
- Cara S. Lown & Robert W. Rich, 1997. "Is there an inflation puzzle?," Research Paper 9723, Federal Reserve Bank of New York.
- Geoffrey M.B. Tootell, 1994. "Restructuring, the NAIRU, and the Phillips curve," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 31-44.
- Mork, Knut Anton, 1989. "Oil and Macroeconomy When Prices Go Up and Down: An Extension of Hamilton's Results," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 740-744, June.
- Robert J. Gordon, 1970. "The Recent Acceleration of Inflation and Its Lessons for the Future," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(1), pages 8-47.
- Robert G. King & James H. Stock & Mark W. Watson, 1995. "Temporal instability of the unemployment-inflation relationship," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 2-12. Full references (including those not matched with items on IDEAS)
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