A Possible Explanation of the Missing Deflation Puzzle

Engin Kara, Ahmed Pirzada

Research output: Contribution to journalArticle (Academic Journal)

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.
Original languageEnglish
Pages (from-to)361-373
Number of pages13
JournalEconomic Inquiry
Volume58
Issue number1
Early online date6 Sep 2019
DOIs
Publication statusPublished - Jan 2020

Structured keywords

  • ECON Macroeconomics

Keywords

  • Price Mark-up Shocks
  • Great Recession
  • Inflation
  • DSGE
  • Intermediate Inputs
  • Input-Output linkages

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