Inflation, uncertainty, and labour market conditions in the US

Claudiu Albulescu () and Cornel Oros

Applied Economics, 2020, vol. 52, issue 52, 5770-5782

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 labour market conditions improved after the Global crisis from 2008 to 2009, 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 labour market conditions on the US inflation level. To this end, we use two bounded measures of inflation uncertainty, and we compare a linear with an asymmetric Autoregressive Distributed Lag (ARDL) framework. We show that both inflation uncertainty and labour 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 labour market in explaining the US inflation in the long run, we show that the labour market influence is stronger in the post-crisis, compared with the pre-crisis period. Therefore, the monetary policymakers cannot make abstraction of labour market developments in anticipating the US inflation level.

Date: 2020
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Working Paper: Inflation, uncertainty, and labour market conditions in the US (2020)
Working Paper: Inflation, uncertainty and labor market conditions in the US (2020)
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DOI: 10.1080/00036846.2020.1772458

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