Accounting for Post-Crisis Inflation and Employment: A Retro Analysis
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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Document Object Identifier (DOI): 10.3386/w20707
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