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Accounting for Post-Crisis Inflation and Employment: A Retro Analysis

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  • Fratto, Chiara
  • Uhlig, Harald

Abstract

Why was there no deflation and what accounts for inflation after 2008? We use the prominent pre-crisis Smets-Wouters (2007) model to address this question. We find that due to price markup shocks alone inflation would have been 1%higher than observed and 0.5% higher that the long-run average. Their standard deviation is similar to its pre-crisis level. Price markup shocks were also responsible for the slow recovery of employment, though not for the initial drop. Monetary policy shocks predict an inflation rate 0.5% below average. Government expenditure innovations do not contribute much either to inflation or to employment dynamics

Suggested Citation

  • Fratto, Chiara & Uhlig, Harald, 2014. "Accounting for Post-Crisis Inflation and Employment: A Retro Analysis," CEPR Discussion Papers 10306, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10306
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    References listed on IDEAS

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    6. Lawrence Christiano, 2014. "Understanding the Great Recession," Annual Meeting Plenary 2014-1, Society for Economic Dynamics.
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    Cited by:

    1. Kyle Herkenhoff & Lee Ohanian, 2019. "The Impact of Foreclosure Delay on U.S. Employment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 63-83, January.
    2. Hu, Ruiyang & Zarazaga, Carlos E., 2016. "Fiscal stabilization and the credibility of the U.S. budget sequestration spending austerity," Working Papers 1616, Federal Reserve Bank of Dallas.
    3. Kollmann, Robert & Pataracchia, Beatrice & Raciborski, Rafal & Ratto, Marco & Roeger, Werner & Vogel, Lukas, 2016. "The post-crisis slump in the Euro Area and the US: Evidence from an estimated three-region DSGE model," European Economic Review, Elsevier, vol. 88(C), pages 21-41.
    4. Lindé, Jesper & Smets, Frank & Wouters, Rafael, 2016. "Challenges for Central Banks' Macro Models," CEPR Discussion Papers 11405, C.E.P.R. Discussion Papers.
    5. S. Guilloux-Nefussi, 2016. "Globalization, Market Structure and Inflation Dynamics," Working papers 610, Banque de France.
    6. repec:eee:macchp:v2-2185 is not listed on IDEAS
    7. Harald Uhlig, 2016. "Comment on "Jump-Starting the Euro Area Recovery: Would a Rise in Core Fiscal Spending Help the Periphery?"," NBER Chapters,in: NBER Macroeconomics Annual 2016, Volume 31, pages 183-197 National Bureau of Economic Research, Inc.
    8. Carlos Zarazaga & Ruiyang Hu, 2017. "Fiscal Stabilization and the Credibility of the U.S. Budget Sequestration Spending Austerity," 2017 Meeting Papers 250, Society for Economic Dynamics.
    9. Boris Chafwehé & Rigas Oikonomou & Romanos Priftis & Lukas Vogel, 2018. "Endogenous forward guidance," Working Paper Research 354, National Bank of Belgium.
    10. Kyle Herkenhoff & Lee Ohanian, 2019. "The Impact of Foreclosure Delay on U.S. Employment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 63-83, January.
    11. Lindé, Jesper & Trabandt, Mathias, 2019. "Resolving the Missing Deflation Puzzle," CEPR Discussion Papers 13690, C.E.P.R. Discussion Papers.
    12. Mitman, Kurt & Rabinovich, Stanislav, 2019. "Do Unemployment Benefit Extensions Explain the Emergence of Jobless Recoveries?," IZA Discussion Papers 12365, Institute of Labor Economics (IZA).

    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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