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One Hundred Inflation Shocks: Seven Stylized Facts

Author

Listed:
  • Mr. Anil Ari
  • Mr. Carlos Mulas-Granados
  • Mr. Victor Mylonas
  • Mr. Lev Ratnovski
  • Wei Zhao
Abstract
This paper identifies over 100 inflation shock episodes in 56 countries since the 1970s, including over 60 episodes linked to the 1973–79 oil crises. We document that only in 60 percent of the episodes was inflation brought back down (or “resolved”) within 5 years, and that even in these “successful” cases resolving inflation took, on average, over 3 years. Success rates were lower and resolution times longer for episodes induced by terms-of-trade shocks during the 1973–79 oil crises. Most unresolved episodes involved “premature celebrations”, where inflation declined initially, only to plateau at an elevated level or re-accelerate. Сountries that resolved inflation had tighter monetary policy that was maintained more consistently over time, lower nominal wage growth, and less currency depreciation, compared to unresolved cases. Successful disinflations were associated with short-term output losses, but not with larger output, employment, or real wage losses over a 5-year horizon, potentially indicating the value of policy credibility and macroeconomic stability.

Suggested Citation

  • Mr. Anil Ari & Mr. Carlos Mulas-Granados & Mr. Victor Mylonas & Mr. Lev Ratnovski & Wei Zhao, 2023. "One Hundred Inflation Shocks: Seven Stylized Facts," IMF Working Papers 2023/190, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2023/190
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    References listed on IDEAS

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    1. Lucio Gobbi & Ronny Mazzocchi & Roberto Tamborini, 2024. "When Should Central Banks Fear Inflation Expectations?," CESifo Working Paper Series 10966, CESifo.

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    More about this item

    Keywords

    Inflation Shocks; Disinflation; Monetary Policy; 1973–79 Oil Crises; Termsof- Trade Shocks; terms-of-trade shock; inflation shock; shock episode; episode selection; involved premature celebration; Inflation; Oil prices; Fiscal stance; Global;
    All these keywords.

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