The Inflation Rate Disconnect Puzzle: On the International Component of Trend Inflation and the Flattening of the Phillips Curve

Guido Ascari and Luca Fosso ()
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Luca Fosso: University of Pavia

No 2113, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: Since 2000 U.S. inflation has remained both below target and silent to domestic slack and monetary interventions. A trend-cycle VAR decomposition explores the role of globalisation in explaining the puzzling behaviour of inflation. The trend analysis shows that, starting from 90s, despite very well-anchored expectations, slow-moving imported ”cost-push” factors induced deflationary pressure keeping trend inflation below target. The cycle block provides evidence in favour of the flattening of Phillips curve, mainly attributable to a weaker wage pass-through. The business cycle behaviour of inflation is determined by a shock originating abroad, which indeed generates the main bulk of volatility in the international prices of intermediate goods and is poorly connected to the domestic slack.

Keywords: Trend-Cycle Decomposition; Trend Inflation; Global Inflation; Phillips Curve; Spectral Analysis (search for similar items in EconPapers)
JEL-codes: C11 C32 E3 E31 E52 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2021-04
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: The Inflation Rate Disconnect Puzzle: On the International Component of Trend Inflation and the Flattening of the Phillips Curve (2021)
Working Paper: The Inflation Rate Disconnect Puzzle: On the International Component of Trend Inflation and the Flattening of the Phillips Curve (2021)
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