American Economic Review: Vol. 104 No. 5 (May 2014)

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Inflation Persistence, the NAIRU, and the Great Recession

Article Citation

Watson, Mark W. 2014. "Inflation Persistence, the NAIRU, and the Great Recession." American Economic Review, 104(5): 31-36.

DOI: 10.1257/aer.104.5.31

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.

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Online Appendix (156.66 KB) | Download Data Set (400.38 KB) | Author Disclosure Statement(s) (25.37 KB)

Authors

Watson, Mark W. (Princeton U)

JEL Classifications

E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E31: Price Level; Inflation; Deflation
E32: Business Fluctuations; Cycles
G01: Financial Crises


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