What Do Long Data Tell Us about the Permanent Component of Inflation?

Stephanie Schmitt-Grohe and Martín Uribe

AEA Papers and Proceedings, 2024, vol. 114, 101-05

Abstract: Is postwar data enough to estimate the permanent component of inflation? We find that it is not for episodes of sudden and large inflation spikes like the one observed after the COVID-19 pandemic because such episodes are rare in the prewar sample (the inflation of the 1980s took 15 years to develop). However, prewar data is rich in sudden inflation spikes, thus providing useful information. Estimates using data over the period 1900–2022 predict that the permanent component of inflation increased by only 1.3 percentage points from 2019–2022 but by 5.0 percentage points when estimated using 1955–2022 data.

JEL-codes: C82 E31 N12 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1257/pandp.20241054

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