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The Great Recession and the Inflation Puzzle

Troy D Matheson and Emil Stavrev

No 2013/124, IMF Working Papers from International Monetary Fund

Abstract: Notwithstanding persistently-high unemployment following the Great Recession, inflation in the United States has been remarkably stable. We find that a traditional Phillips curve describes the behavior of inflation reasonably well since the 1960s. Using a non-linear Kalman filter that allows for time-varying parameters, we find that three factors have contributed to the observed stability of inflation: inflation expectations have become better anchored and to a lower level; the slope of the Phillips curve has flattened; and the importance of import-price inflation has increased.

Keywords: Inflation; Hyperinflation; Import prices; Unemployment rate; Unemployment; WP,inflation expectation (search for similar items in EconPapers)
Pages: 12
Date: 2013-05-22
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