Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154433
Authors: 
Bobeica, Elena
Jarociński, Marek
Year of Publication: 
2017
Series/Report no.: 
ECB Working Paper 2000
Abstract: 
In the immediate wake of the Great Recession we didn't see the disinflation that most models predicted and, subsequently, we didn't see the inflation they predicted. We show that these puzzles disappear in a Vector Autoregressive model that properly accounts for domestic and global factors. Such a model reveals, among others, that domestic factors explain much of the inflation dynamics in the 2012-2014 euro area missing inflation episode. Consequently, economists and models that excessively focused on the global nature of inflation were liable to miss the contribution of deflationary domestic shocks during this episode.
Subjects: 
Bayesian vector autoregression
conditional forecast
inflation dynamics
international transmission of shocks
Phillips curve
shock identification
JEL: 
E31
E32
F44
Document Type: 
Working Paper

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