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The Great Recession and the Inflation Puzzle

Author

Listed:
  • Mr. Troy D Matheson
  • Mr. Emil Stavrev

Abstract

Notwithstanding persistently-high unemployment following the Great Recession, inflation in the United States has been remarkably stable. We find that a traditional Phillips curve describes the behavior of inflation reasonably well since the 1960s. Using a non-linear Kalman filter that allows for time-varying parameters, we find that three factors have contributed to the observed stability of inflation: inflation expectations have become better anchored and to a lower level; the slope of the Phillips curve has flattened; and the importance of import-price inflation has increased.

Suggested Citation

  • Mr. Troy D Matheson & Mr. Emil Stavrev, 2013. "The Great Recession and the Inflation Puzzle," IMF Working Papers 2013/124, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2013/124
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    References listed on IDEAS

    as
    1. Laurence Ball & Sandeep Mazumder, 2011. "Inflation Dynamics and the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 337-405.
    2. James H. Stock & Mark W. Watson, 2010. "Modeling inflation after the crisis," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 173-220.
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    More about this item

    Keywords

    WP; inflation expectation; Inflation; Unemployment; Phillips Curve; import-price inflation; year-over-year headline CPI inflation; inflation puzzle; inflation in the United States; Global financial crisis of 2008-2009; Hyperinflation; Import prices; Unemployment rate;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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