European Parliament Library

Inflation and Activity – Two Explorations and their Monetary Policy Implications, Olivier Blanchard, Eugenio Cerutti, Lawrence Summers

We explore two issues triggered by the crisis. First, in most advanced countries, output remains far below the pre-recession trend, suggesting hysteresis. Second, while inflation has decreased, it has decreased less than anticipated, suggesting a breakdown of the relation between inflation and activity. To examine the first, we look at 122 recessions over the past 50 years in 23 countries. We find that a high proportion of them have been followed by lower output or even lower growth. To examine the second, we estimate a Phillips curve relation over the past 50 years for 20 countries. We find that the effect of unemployment on inflation, for given expected inflation, decreased until the early 1990s, but has remained roughly stable since then. We draw implications of our findings for monetary policy
Table Of Contents
Cover -- Content -- Abstract -- I. Introduction -- II. Aftereffects of Recessions: Hysteresis? -- A. Measuring the Effects of Recessions: A Non-Parametric Approach -- B. What could be behind the results? Hysteresis and alternative hypotheses -- C. Controlling by Type of Recession -- D. Relative Output Gaps -- E. Main Takeaways -- III. Does Unemployment Affect Inflation? -- A. Empirical Estimations of Phillips Curves: A Time-Varying Approach -- B. Empirical Estimations of Phillips Curves: A Simpler Approach -- IV. Implications For Monetary Policy -- Tables -- 1. Analysis of the differences between output level and trend across recessions -- 2. Recessions with/without financial crises -- 3. Recessions with/without oil price increases -- 4. Recessions with/without increasing inflation -- 5. Recessions with/without intentional disinflations -- 6. Slope of the Phillips Curve -- Figures -- 1. Advanced Economies Real GDP -- 2. Actual GDP and Extrapolated Trends -- 3. United States -Evolution of log real GDP and Extrapolated Trends -- 4. Portugal -Evolution of log real GDP and Extrapolated Trends -- 5. Histogram of Average Adjusted Output Gaps -- 6. Histogram of Average Relative Output Gaps -- 7. Advanced Economies CPI Headline Inflation -- 8. Median estimates -- 9. Estimates for Germany and the UK -- 10. Decreases in growth, recessions, and output gaps -- References
Literary Form
non fiction
Physical Description
1 online resource (30 pages)
Specific Material Designation
Form Of Item

Library Locations

  • EP Library Brussels

    60 rue Wiertz, Brussels, B-1047, BE
  • EP Library Strasbourg

    7 Place Adrien Zeller, Allée du Printemps, Strasbourg, F-67070, FR
  • EP Library Luxembourg

    Rue du Fort Thüngen, Luxembourg, L-1313, LU