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

  • Olivier Coibion
  • Yuriy Gorodnichenko

We evaluate possible explanations for the absence of a persistent decline in inflation during the Great Recession and find commonly suggested 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.

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File URL: http://www.nber.org/papers/w19598.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19598.

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Date of creation: Oct 2013
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Publication status: published as Is The Phillips Curve Alive and Well After All? Inflation Expectations and the Missing Disinflation , Olivier Coibion, Yuriy Gorodnichenko. in Lessons from the Financial Crisis for Monetary Policy , Gertler. 2015
Handle: RePEc:nbr:nberwo:19598
Note: EFG ME
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  14. Yuriy Gorodnichenko & Johannes Wieland & Olivier Coibion, 2012. "The Optimal Inflation Rate in New Keynesian Models: Should Central Banks Raise Their Inflation Targets in Light of the Zero Lower Bound?," 2012 Meeting Papers 70, Society for Economic Dynamics.
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  24. Yuriy Gorodnichenko & Olivier Coibion, 2010. "What can survey forecasts tell us about informational rigidities?," 2010 Meeting Papers 277, Society for Economic Dynamics.
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