Inflation and Activity – Two Explorations and their Monetary Policy Implications
Nov 2015 · International Monetary Fund
Ebook
29
Pages
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About this ebook
We explore two issues triggered by the crisis. First, in most advanced countries, output remains far below the pre-recession trend, suggesting hysteresis. Second, while inflation has decreased, it has decreased less than anticipated, suggesting a breakdown of the relation between inflation and activity. To examine the first, we look at 122 recessions over the past 50 years in 23 countries. We find that a high proportion of them have been followed by lower output or even lower growth. To examine the second, we estimate a Phillips curve relation over the past 50 years for 20 countries. We find that the effect of unemployment on inflation, for given expected inflation, decreased until the early 1990s, but has remained roughly stable since then. We draw implications of our findings for monetary policy.
About the author
Olivier Blanchard is Economic Counselor and Director of the Research Department at the International Monetary Fund. He is the author of "Macroeconomics", among other books, and coauthor of "Lectures on Macroeconomics "(MIT Press). David Romer is Herman Royer Professor of Political Economy at the University of California, Berkeley, and author of "Advanced Macroeconomics". Michael Spence, co-recipient of the 2001 Nobel Prize in Economics, is Professor Emeritus of Management at Stanford University's Graduate School of Business and Professor of Economics at New York University's Stern School of Business. He served as Chairman of the Commission on Growth and Development from 2006 to 2010 (the life of the commission). He is the author of "The Next Convergence: The Future of Economic Growth in a Multispeed World". Joseph Stiglitz, co-recipient of the 2001 Nobel Prize in Economics, is University Professor at Columbia University. He served as Chairman of the U.S. Council of Economic Advisers in the Clinton administration, and from 1997 to 2000 as World Bank Chief Economist and Senior Vice President in Development Economics. He is the author of "Freefall: Free Markets and the Sinking of the World Economy, Globalization and Its Discontents", and other books.
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