Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/113755
Authors: 
Kara, Engin
Pirzada, Ahmed Jamal
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5429
Abstract: 
During the Great Recession, despite the large fall in output, inflation did not fall much. This is known as the missing deflation puzzle. In this paper, we develop and estimate a New Keynesian Dynamic Stochastic General Equilibrium model to provide an explanation for the puzzle. The new model allows for time-varying volatility in cross-sectional idiosyncratic uncertainty and ac-counts for the changes in intermediate goods prices. Our model can forecast the large fall in output and stable inflation during the Great Recession. We show that inflation did not fall much because intermediate goods prices were increasing during the Great Recession.
Subjects: 
price mark-up shocks
Great Recession
inflation
DSGE
intermediate inputs
JEL: 
E52
E58
Document Type: 
Working Paper

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