Inflation, uncertainty and labor market conditions in the US

Claudiu Albulescu () and Cornel Oros

Working Papers from HAL

Abstract: Recent inflation dynamics in the United States (US) questioned the role of driving forces of inflation in the long run. Although the US recorded one of the longest economic recovery periods and the labor market conditions improved after the Global crisis, the inflation level remained relatively low. Starting from this evidence, the purpose of our paper is to shed light to the influence of inflation uncertainty and labor market conditions on the US inflation level. To this end, we first use two bounded measures of inflation uncertainty, relying on Chan et al.'s (2013) and Chan's (2017) unobserved component models. Second, we compare a linear with an asymmetric Autoregressive Distributed Lag (ARDL) framework. We show that both inflation uncertainty and labor market conditions explain the long-run US inflation. However, these results are sensitive to the way the inflation uncertainty is computed. Moreover, contrary to the recent affirmations regarding the vanishing role of labor market in explaining the US inflation in the long run, we show that the labor market influence is stronger in the post-crisis, compared with the pre-crisis period. Therefore, the monetary policymakers cannot make abstraction of labor market developments in anticipating the US inflation level.

Keywords: US inflation; inflation uncertainty; labor market; bounded series; NARDL; E24; E31; E58 (search for similar items in EconPapers)
Date: 2020-02-03
New Economics Papers: this item is included in nep-mac and nep-mon
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Journal Article: Inflation, uncertainty, and labour market conditions in the US (2020)
Working Paper: Inflation, uncertainty, and labour market conditions in the US (2020)
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