Explaining the Low US Inflation - Coincidence or "New Economy"? Evidence Based on a Wage-Price Spiral

Arbeitspapier

We study possible factors behind the subdued inflation in the United States since the mid-1990s. A standard expectations-augmented Phillips curve does not exhibit structural breaks. However, a wage-price spiral comprising wage growth, consumer price inflation and producer price inflation shows an otherwise unexplained downward shift in CPI inflation since the mid-1990s. We estimate this downward shift to be approximately 1 percentage point since 1994. The result emerges in spite of a large number of explanatory variables and seems to reflect deep structural changes of the economy. Counterfactual simulation of the wage-price spiral shows that the low level of U.S. inflation during the late 1990s stems from coincidental favourable shocks as well as factors that may reflect new economy developments.

Object Details

• ISBN: 82-7553-178-0
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2001/2

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Price Level; Inflation; Deflation ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
• Subject: inflation ; wage-price spiral ; unemployment ; productivity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Claussen, Carl Andreas ; Staehr, Karsten
• Event: Veröffentlichung
• (who): Norges Bank
• (where): Oslo
• (when): 2001

Further information

• Handle: http://hdl.handle.net/10419/209791
• Last update: 10.03.2025, 11:42 AM CET