The Nonpuzzling Behavior of Median Inflation / Laurence M. Ball, Sandeep Mazumder.

Format:

Book

Author/Creator:

Ball, Laurence M.

Contributor:

National Bureau of Economic Research.

Mazumder, Sandeep.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25512.

NBER working paper series no. w25512

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

Economists are puzzled by the behavior of U.S. inflation since the Great Recession of 2008-2009, and many suggest that the Phillips curve relating inflation to unemployment has broken down. This paper argues that inflation behavior is easier to understand if we divide headline inflation into core and transitory components, and if core inflation is measured by the weighted median of industry inflation rates. This weighted median is less volatile than the traditional measure of core inflation, the inflation rate excluding food and energy prices, because it filters out large price changes in all industries. We illustrate the usefulness of the weighted median with a case study of inflation in 2017 and early 2018. We also show that a Phillips curve relating the weighted median to unemployment appears clearly in the data for 1985-2017, with no sign of a breakdown in 2008.

Notes:

Print version record

January 2019.