Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237722 
Year of Publication: 
2021
Series/Report no.: 
ECB Working Paper No. 2583
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
The link between US labor cost and price inflation has weakened notably over the past three decades. In this paper we document this decline and analyse potential contributing factors. We consider four important trends that have shaped the US economy of late: (i) improved anchoring of inflation expectations; (ii) the changing constellation of shocks hitting the economy; (iii) increased trade integration and (iv) rising firm market power. We find that the improved anchoring of inflation expectations has played a particularly relevant role but also that the latter two trends offer promising avenues to understand the decline in pass-through from labor cost to price inflation. Our results also bring supportive evidence to the view taken by the FED in the context of its monetary policy strategy review that a robust job market can be sustained without causing an outbreak of inflation.
Subjects: 
Inflation
pass-through
labor costs
structural VAR
United States
JEL: 
C32
E24
E31
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4806-7
Document Type: 
Working Paper

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