The inflation rate disconnect puzzle: On the international component of trend inflation and the flattening of the Phillips curve

Arbeitspapier

Since 2000 U.S. inflation has remained both below target and silent to domestic slack and monetary interventions. A trend-cycle BVAR decomposition explores the role of imported intermediate goods in explaining the puzzling behaviour of inflation. The trend analysis shows that, starting from the '90s, despite very well-anchored expectations, slow-moving imported "cost-push" factors induced deflationary pressure keeping trend inflation below target. The cycle block provides evidence in favour of a flattening of the Phillips curve, mainly attributable to a weaker wage pass-through. The business cycle behaviour of inflation is determined by a shock originating abroad, which indeed generates the main bulk of volatility in the international prices of intermediate goods and is poorly connected to the domestic slack.

Object Details

• ISBN: 978-82-8379-216-4
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 17/2021

Classification and Topics

• Classification: Wirtschaft ; Bayesian Analysis: General ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Price Level; Inflation; Deflation ; Monetary Policy
• Subject: Trend-Cycle Decomposition ; Trend Inflation ; Global Inflation ; Phillips Curve

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ascari, Guido ; Fosso, Luca
• Event: Veröffentlichung
• (who): Norges Bank
• (where): Oslo
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/264939
• Last update: 10.03.2025, 11:46 AM CET