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Inflation volatility and inflation in the wake of the great recession


A reduced-form investigation reveals that the relationship between the level of inflation and its volatility in the USA may not have been monotonic. This paper quantifies a reversal of the relationship by considering linear and nonlinear estimation methodologies on the trend and volatility of inflation. Our findings suggest that the spikes in inflation volatility in the period after 2008 are related to transitory, rather than permanent movements in inflation, suggesting that the US Great Moderation period may be merely on hold, rather than over with.

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  1. In addition, others have suggested that the stability gains in the volatility of inflation achieved during the Great Moderation might now be over. The financial and economic crisis that began in 2007 brought to an abrupt end a period of economic tranquility that many macroeconomists had celebrated as “The Great Moderation”” (Keen 2013).

  2. We experimented with different window lengths from 36 to 120 months and with increments in the window from 1 to 12 months. Qualitatively, the ensuing results were not sensitive to these modifications.

  3. Our sample of US daily inflation is available through November, 2015 and comes from the Billion Price Project which was made available by State Street’s PriceStat through the St. Louis FRB website FRED. The Billion Price Project stopped reporting this data after November 2015, is no longer available after November 2015, less than a month before the Federal Reserve began their new monetary regime (liftoff from ZLB).

  4. Conversely, the correlation between inflation volatility and the HP trend component of inflation remains positive and statistically significant.

  5. State Street and PriceStats, State Street PriceStats Inflation Series for the United States [USINFL], retrieved from FRED, Federal Reserve Bank of St. Louis, November 7, 2015.

  6. Lag selection is accomplished by BIC.

  7. BIC selected 12 lags. Estimates of total daily inflation were largely insensitive to altering the number of lags from 9 to 18.


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Correspondence to Semih Emre Çekin.

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Çekin, S.E., Valcarcel, V.J. Inflation volatility and inflation in the wake of the great recession. Empir Econ 59, 1997–2015 (2020).

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  • Inflation volatility
  • Markov switching
  • Mixed-frequency regressions

JEL Classification

  • E30
  • E31
  • E65