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- Title
A POSSIBLE EXPLANATION OF THE MISSING DEFLATION PUZZLE.
- Authors
Kara, Engin; Pirzada, Ahmed
- Abstract
Following the Great Recession, despite large and persistent slowdown in economic activity, the fall in inflation was modest. This is known as the missing deflation puzzle. In this paper, we develop and estimate a New Keynesian model to provide an explanation for the puzzle. The new model allows for time‐varying volatility in cross‐sectional idiosyncratic uncertainty and accounts for changes in intermediate input prices. We show that inflation did not fall much because intermediate input prices were increasing.
- Subjects
PRICE deflation; KEYNESIAN economics; GREAT Recession, 2008-2013; ECONOMIC activity; IDIOSYNCRATIC risk (Securities)
- Publication
Economic Inquiry, 2020, Vol 58, Issue 1, p361
- ISSN
0095-2583
- Publication type
Article
- DOI
10.1111/ecin.12839