Accounting for Post-Crisis Inflation and Employment: A Retro Analysis

Chiara Fratto · Harald Uhlig

15 citations0/0 files storedNational Bureau of Economic Research

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Monetary Policy and Economic Impact Economic Theory and Policy Economic theories and models

Abstract

What accounts for inflation after 2008?We use the prominent pre-crisis Smets-Wouters (2007) model to address this question.We find that due to price markup shocks alone inflation would have been 1% higher than observed and 0.5% higher that the long-run average.Their standard deviation is similar to its pre-crisis level.Price markup shocks were also responsible for the slow recovery of employment, though not for the initial drop.Monetary policy shocks predict an inflation rate 0.5% below average.Government expenditure innovations do not contribute much either to inflation or to employment dynamics.

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References

2010Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach 2013Risk Shocks 2007Business Cycle Accounting 2008Pricing-to-Market, Trade Costs, and International Relative Prices 2007ABCs (and Ds) of Understanding VARs 1994Intermediate Goods and Business Cycles: Implications for Productivity and Welfare 2015Understanding the Great Recession 2011Managing a Liquidity Trap: Monetary and Fiscal Policy

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