A possible explanation of the missing deflation puzzle

Kara, Engin ORCID: https://orcid.org/0000-0003-0715-4857 and Pirzada, Ahmed 2020. A possible explanation of the missing deflation puzzle. Economic Inquiry 58 (1) , pp. 361-373. 10.1111/ecin.12839

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Abstract

Following the Great Recession, despite large and persistent slowdown in economic activity, the fall in inflation was modest. This is known as the missing deflation puzzle. In this paper, we develop and estimate a New Keynesian model to provide an explanation for the puzzle. The new model allows for time-varying volatility in cross-sectional idiosyncratic uncertainty and accounts for changes in intermediate input prices. We show that inflation did not fall much because intermediate input prices were increasing.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Publisher:	Wiley
ISSN:	0095-2583
Date of First Compliant Deposit:	3 October 2019
Date of Acceptance:	31 July 2019
Last Modified:	07 Nov 2023 07:02
URI:	https://orca.cardiff.ac.uk/id/eprint/125278

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