Inflation Persistence, the NAIRU, and the Great Recession
AbstractThe 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.
CitationWatson, 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
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles
- G01 Financial Crises