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Inflation Dynamics and the Great Recession, Sandeep Mazumder, Laurence Ball

This paper examines inflation dynamics in the United States since 1960, with a particular focus on the Great Recession. A puzzle emerges when Phillips curves estimated over 1960-2007 are ussed to predice inflation over 2008-2010: inflation should have fallen by more than it did. We resolve this puzzle with two modifications of the Phillips curve, both suggested by theories of costly price adjustment: we measure core inflation with the median CPI inflation rate, and we allow the slope of the Phillips curve to change with the level and vairance of inflation. We then examine the hypothesis of anchored inflation expectations. We find that expectations have been fully "shock-anchored" since the 1980s, while "level anchoring" has been gradual and partial, but significant. It is not clear whether expectations are sufficiently anchored to prevent deflation over the next few years. Finally, we show that the Great Recession provides fresh evidence against the New Keynesian Phillips curve with rational expectations
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; 1. Introduction; 2. A Simple Phillips Curve and a Puzzle; 2.1 The Philips Curve; 2.2 The Puzzle; 1. Phillips Curve Estimated from 1960:1 to 2007:4; 1. 4-Quarter Moving Averages of Dynamics Forecasts of Inflation for 2008 to 2010 Based on 1960:1-2007:4 Regression; 3. Measuring Core Inflation; 3.1 Measuring Supply Shocks; 3.2 From Supply Shocks to Core Inflation; 3.3 Measuring Median Inflation; 3.4 Some New Evidence; 2. Median CPI and XFE CPI Inflation Rates, 1983:2-2010:4; 3.5 Median Inflation During the Great Recession
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (70 p.)
Specific Material Designation
Form Of Item

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