Inflation in the Great Recession and New Keynesian models

Marco Del Negro, Marc Giannoni and Frank Schorfheide ()
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Frank Schorfheide: https://economics.sas.upenn.edu/people/frank-schorfheide

No 618, Staff Reports from Federal Reserve Bank of New York

Abstract: It has been argued that existing DSGE models cannot properly account for the evolution of key macroeconomic variables during and following the recent great recession. We challenge this argument by showing that a standard DSGE model with financial frictions available prior to the recent crisis successfully predicts a sharp contraction in economic activity along with a modest and protracted decline in inflation following the rise in financial stress in the fourth quarter of 2008. The model does so even though inflation remains very dependent on the evolution of economic activity and of monetary policy.

Keywords: missing disinflation; Great recession; fundamental inflation; DSGE models; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: C52 E31 E32 E37 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2013
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Note: For a published version of this report, see Marco Del Negro, Marc P. Giannoni, and Frank Schorfheide, "Inflation in the Great Recession and New Keynesian Models," American Economic Journal: Macroeconomics 7, no. 1 (January 2015): 168-96.
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Inflation in the Great Recession and New Keynesian Models (2015)
Working Paper: Inflation in the Great Recession and New Keynesian Models (2014)
Working Paper: Inflation in the Great Recession and New Keynesian Models (2014)
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