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Inflation, uncertainty and labor market conditions in the US

Author

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  • Claudiu Tiberiu Albulescu

    (CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière - UP - Université de Poitiers = University of Poitiers)

  • Cornel Oros

    (CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière - UP - Université de Poitiers = University of Poitiers)

Abstract

Recent inflation dynamics in the United States (US) questioned the role of driving forces of inflation in the long run. Although the US recorded one of the longest economic recovery periods and the labor market conditions improved after the Global crisis, the inflation level remained relatively low. Starting from this evidence, the purpose of our paper is to shed light to the influence of inflation uncertainty and labor market conditions on the US inflation level. To this end, we first use two bounded measures of inflation uncertainty, relying on Chan et al.'s (2013) and Chan's (2017) unobserved component models. Second, we compare a linear with an asymmetric Autoregressive Distributed Lag (ARDL) framework. We show that both inflation uncertainty and labor market conditions explain the long-run US inflation. However, these results are sensitive to the way the inflation uncertainty is computed. Moreover, contrary to the recent affirmations regarding the vanishing role of labor market in explaining the US inflation in the long run, we show that the labor market influence is stronger in the post-crisis, compared with the pre-crisis period. Therefore, the monetary policymakers cannot make abstraction of labor market developments in anticipating the US inflation level.

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  • Claudiu Tiberiu Albulescu & Cornel Oros, 2020. "Inflation, uncertainty and labor market conditions in the US," Working Papers hal-02464147, HAL.
    • Handle: RePEc:hal:wpaper:hal-02464147
    Note: View the original document on HAL open archive server: https://hal.science/hal-02464147
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    References listed on IDEAS

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    More about this item

    Keywords

    US inflation; inflation uncertainty; labor market; bounded series; NARDL; E24; E31; E58;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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