A Possible Explanation of the Missing Deflation Puzzle

Engin Kara and Ahmed Pirzada

Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK

Abstract: During the Great Recession, despite the large fall in output, 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 goods prices. We show that inflation did not fall much because intermediate goods prices were increasing during the Great Recession.

Keywords: Price Mark-up Shocks; Great Recession; Inflation; DSGE; Intermediate Inputs. (search for similar items in EconPapers)
Pages: 43 pages
Date: 2016-03-01, Revised 2017-03-29
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.bristol.ac.uk/efm/media/workingpapers/w ... pdffiles/dp16670.pdf (application/pdf)

Related works:
Journal Article: A POSSIBLE EXPLANATION OF THE MISSING DEFLATION PUZZLE (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bri:uobdis:16/670

Access Statistics for this paper

More papers in Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK
Bibliographic data for series maintained by Vicky Jackson ().