Trend Inflation and the Unemployment Volatility Puzzle
نویسنده
چکیده
I show that the combination of small positive trend inflation with staggered prices may account for the large relative volatilities found in US labor market data. The model does not have any wage rigidity and is hit only by an aggregate technology shock. The calibration procedure uses standard parameter values. Controlling for the sample average of the CPI inflation rate and the degree of price stickiness, the model solves the Shimer (2005) puzzle and explains the volatilities observed during two important sample periods: full sample (1951-2005) and Great Moderation (1985-2005).
منابع مشابه
A State-Dependent Model for Inflation Forecasting
We develop a parsimonious bivariate model of inflation and unemployment that allows for persistent variation in trend inflation and the NAIRU. The model, which consists of five unobserved components (including the trends) with stochastic volatility, implies a time-varying VAR for changes in the rates of inflation and unemployment. The implied backwards-looking Phillips curve has a time-varying ...
متن کاملOmparison of Pre-and Post-wwii Business Cycles: E Implications for the Role of Postwar Macroeconomic Policies
We compute the potential economic benefits that would accrue to a typical pre-WWII era US worker from the post-WWII macroeconomic policy regime. We assume that workers face undiversifiable income risk but can self-insure by saving in nominal assets. The worker’s average utility is computed for two eras: pre-WWII (1875-1941) and post-WWII. In the pre-WWII era, the worker endured business cycles ...
متن کاملCEP Discussion Paper No 839 November 2007 The Unemployment Volatility Puzzle : Is Wage Stickiness the Answer ?
I study the cyclical behavior of an equilibrium search model with endogenous job creation and destruction, with focus on the model’s failure to match the observed cyclical volatility of unemployment. Job creation in the model is influenced by wages in new matches. I summarize microeconometric evidence on wages in new matches and show that the key model elasticities are consistent with the evide...
متن کاملDo Asymmetric Central Bank Preferences Help Explain Observed Inflation Outcomes?
When the central banker’s loss function is asymmetric, changes in the volatility of inflation and/or unemployment affect equilibrium inflation. This suggests that changing macroeconomic volatilities may be an important driving force behind trends in observed inflation. Previous evidence, which has offered support for this idea, suffers from a spurious regression problem. Once this problem is co...
متن کاملIs Business Cycle Volatility Costly? Evidence from Surveys of Subjective Well-being*
This paper analyses the effects of business cycle volatility on measures of subjective well-being, including self-reported happiness and life satisfaction. I find robust evidence that high inflation and, to a greater extent, unemployment lower perceived well-being. Greater macroeconomic volatility also undermines well-being. These effects are moderate but important: eliminating unemployment vol...
متن کامل