Why has inflation in the United States been so stable since the 1990s?

Marco Del Negro, Michele Lenza, Giorgio Primiceri, Andrea Tambalotti

The analysis of inflation dynamics and their possible changes over time is a key input in the design of monetary policy, particularly in the context of the strategy reviews recently undertaken by the Federal Reserve System and currently under way at the European Central Bank and other central banks. In this article, we study the causes of the stability of US inflation over the business cycle since the 1990s. We conclude that it is mainly due to a reduced sensitivity of firms’ pricing decisions to their cost pressures. Ignoring this observation could impair the ability of monetary policy to steer inflation toward its objective.

Πηγή: Voxeu

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