The Nonpuzzling Behavior of Median Inflation

Laurence Ball and Sandeep Mazumder

No 25512, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E31 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-cba and nep-mac
Note: ME
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Citations: View citations in EconPapers (22)

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Related works:
Chapter: The Nonpuzzling Behavior of Median Inflation (2020)
Working Paper: The Nonpuzzling Behavior of Median Inflation (2019)
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