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  3. American Economic Review
  4. May 2014
  5. Inflation Persistence, the NAIRU, and the Great Recession

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Inflation Persistence, the NAIRU, and the Great Recession

  • Mark W. Watson
American Economic Review
vol. 104, no. 5, May 2014
(pp. 31–36)
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Abstract

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.

Citation

Watson, 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

Additional Materials

JEL Classification

  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
  • E31 Price Level; Inflation; Deflation
  • E32 Business Fluctuations; Cycles
  • G01 Financial Crises