Missing disinflation and missing inflation: the puzzles that aren't
Marek Jarociński and
Elena Bobeica ()
No 2000, Working Paper Series from European Central Bank
In the immediate wake of the Great Recession we didn't see the disinflation that most models predicted and, subsequently, we didn't see the inflation they predicted. We show that these puzzles disappear in a Vector Autoregressive model that properly accounts for domestic and global factors. Such a model reveals, among others, that domestic factors explain much of the inflation dynamics in the 2012-2014 euro area missing inflation episode. Consequently, economists and models that excessively focused on the global nature of inflation were liable to miss the contribution of deflationary domestic shocks during this episode. JEL Classification: E31, E32, F44
Keywords: Bayesian vector autoregression; conditional forecast; inflation dynamics; international transmission of shocks; Phillips curve; shock identification (search for similar items in EconPapers)
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Journal Article: Missing Disinflation and Missing Inflation: A VAR Perspective (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20172000
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