Inflation Persistence, the NAIRU, and the Great Recession | Zendy

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Inflation Persistence, the NAIRU, and the Great Recession

Author(s) -

Mark W. Watson

Publication year - 2014

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.104.5.31

Subject(s) - nairu , economics , inflation (cosmology) , keynesian economics , persistence (discontinuity) , unemployment , misery index , inflation rate , recession , great recession , monetary economics , real interest rate , macroeconomics , econometrics , monetary policy , physics , geotechnical engineering , theoretical physics , engineering

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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