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  3. American Economic Journal: Macroeconomics
  4. January 2015
  5. Is the Phillips Curve Alive and Well after All? Inflation Expectations and the Missing Disinflation

Is the Phillips Curve Alive and Well after All? Inflation Expectations and the Missing Disinflation

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Abstract

We evaluate explanations for the absence of disinflation during the Great Recession and find popular explanations to be insufficient. We propose a new explanation for this puzzle within the context of a standard Phillips curve. If firms' inflation expectations track those of households, then the missing disinflation can be explained by the rise in their inflation expectations between 2009 and 2011. We present new econometric and survey evidence consistent with firms having similar expectations as households. The rise in household inflation expectations from 2009 to 2011 can be explained by the increase in oil prices over this time period. (JEL D84, E24, E32, E52, E58, Q35)

Citation

Coibion, Olivier, and Yuriy Gorodnichenko. 2015. "Is the Phillips Curve Alive and Well after All? Inflation Expectations and the Missing Disinflation." American Economic Journal: Macroeconomics, 7 (1): 197-232. DOI: 10.1257/mac.20130306

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JEL Classification

  • D84 Expectations; Speculations
  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • E32 Business Fluctuations; Cycles
  • E52 Monetary Policy
  • E58 Central Banks and Their Policies
  • Q35 Hydrocarbon Resources
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