Understanding the dynamics of inflation has become an important challenge for both policymakers and researchers over the past decade. Empirical models linking inflation and economic activity—versions of the so-called Phillips curve—have failed to account for the behavior of inflation in many advanced economies. In particular, inflation in the U.S. and other countries was higher during the 2008-2009 Great Recession than the conventional empirical Phillips curve would imply. As noted by some economists, this “missing deflation” phenomenon may have already started in the mid-2000s. Just as puzzling, during the subsequent recovery, inflation has remained subdued relative to the predictions generated by existing models, despite the aggressive expansionary monetary policies implemented in many advanced economies.

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