Can loss aversion shed light on the deflation puzzle?

This paper argues that the application of loss aversion to wage determination can explain deflation puzzle: failure persistently high unemployment exert a persistent downward impact on rate inflation in money wages. is an improvement other theories puzzle which simply assume rigidity, namely hysteresis theory, lubrication theory and efficiency theory. The presents estimates support loss-aversion explanation for both US Australia. Furthermore, our estimation approach gives more precise estimate potential than does natural reveals rates Australia at end 2017 about 4 per cent 3.3 respectively.