Researchers have put forward two explanations for the failure of the US inflation rate to fall as far during the Great Recession as the Phillips curve would predict. Either expectations have been successfully anchored by the Fed’s inflation target, or the Phillips curve is focusing on the wrong thing – aggregate unemployment instead of short-term unemployment. This column shows that the two explanations are complementary; together, they explain the puzzle, but separately they cannot.
Laurence Ball, Sandeep Mazumder, Wednesday, January 7, 2015
Jean-Pierre Landau, Tuesday, December 2, 2014
Eurozone inflation has been persistently declining for almost a year, and constantly undershooting forecasts. Building on existing research, this column explores the conjecture that low inflation in the Eurozone results from an excess demand for safe assets. If true, this conjecture would have definite policy implications. Getting out of such a ‘safety trap’ would necessitate fiscal or non-conventional monetary policies tailored to temporarily take risk away from private balance sheets.
Mickey Levy, Friday, February 21, 2014
A popular view among economic commentators is that rich countries face a serious risk of deflation, and should adopt aggressive macroeconomic stimulus policies to ward it off. This column argues that despite similar headline inflation rates, the US, Europe, and Japan in fact face very different macroeconomic conditions. In the US, much of the recent disinflation is attributable to positive supply-side developments. In Europe, an aggressive round of quantitative easing might encourage policymakers to delay the reforms that are necessary to avoid a prolonged Japanese-style malaise.
Olivier Coibion, Yuriy Gorodnichenko, Friday, November 15, 2013
During the Great Recession, advanced economies have not experienced the disinflation that has historically been associated with high unemployment. This column shows that using consumers’ (as opposed to forecasters’) inflation expectations restores the traditional Phillips curve relationship for recent years. Consumers’ inflation expectations are more responsive to oil prices than those of professional forecasters. The increase in oil prices between 2009 and 2012 may in fact have prevented the onset of pernicious deflationary dynamics.
Robert Ophèle, Wednesday, February 11, 2009
The recent rapid fall in inflation, amidst a financial crisis and a very sharp economic slowdown, has raised the spectre of deflation. But, this column argues, current dynamics in France and the euro area are actually characteristic of a much more positive disinflationary trend, resulting from a temporary correction of certain prices, such as energy prices.