Inflation Persistence, the NAIRU, and the Great Recession

Mark Watson

American Economic Review, 2014, vol. 104, issue 5, 31-36

Abstract: The rate of inflation fell far less over the period 2007-2013 than in the period 1979-1985 despite similar large increases in the unemployment rate. This paper asks why. Possible explanations include a change in the persistence of inflation, changes in NAIRU, and other shocks. A change in the persistence of inflation, with inflation more anchored in the period 2007-2013 than in the period 1979-1985, is found to be important. The level and change in the NAIRU cannot be precisely estimated, but the data suggest an increase of nearly 1 percentage point since 2007.

JEL-codes: E24 E31 E32 G01 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.5.31
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Citations: View citations in EconPapers (62)

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