Comments on: Inflation and the Output Gap

By: Nick Batzdorf

Nick Batzdorf — Wed, 29 Aug 2012 18:48:07 +0000

I suspect that Krugman had the answer in this blog post:

http://krugman.blogs.nytimes.com/2010/02/26/core-logic/

He’s talking about persistent inflation, but persistent prices should follow the same logic – if my brain is working right.

By: Ed M

Ed M — Wed, 29 Aug 2012 13:24:09 +0000

A new paper by Olivier Coibion, Yuriy Gorodnichenko, and Gee Hee Hong, recently summarized by the authors at Econbrowser, suggests that store-switching by consumers (i.e. shopping at lower-priced stores in the face of depressed incomes) explains part of the “missing deflation” during the recent recession.

http://www.econbrowser.com/archives/2012/08/guest_contribut_24.html

By: Martin

Martin — Wed, 29 Aug 2012 10:53:19 +0000

Over at – I believe – Scott Sumner’s blog, I once read that the Core CPI badly measured the price of housing services when compared to the prices of housing in the Case-Shiller Index.

Perhaps this would illustrate the point:

http://research.stlouisfed.org/fred2/graph/?g=9V0

CPI housing, up 5 points. Case-Shiller down 25 points since the start of the crisis.

By: Michael

Michael — Wed, 29 Aug 2012 00:25:48 +0000

I would call it, to some extent, a self-fulfilling prophecy. We are at the zero lower bound. We are going to be at the zero lower bound. The Fed won’t allow deflation. The Fed won’t allow inflation. There are no big shocks, only the slow grind of eating the seed corn. Things won’t get bad until someone pushes, and we’re the world’s reserve currency. Why would anyone do that?

By: Sue

Sue — Tue, 28 Aug 2012 22:37:01 +0000

I’m not an economist, so this may be an irrelevant question, but does the interest that the Fed starting paying banks on excess reserves back in 2008 have any bearing on inflation? Those graphs (of the deposits held by banks at the Fed) I see that climb steeply from (close to) zero before the Fed started paying interest, to over $1.5 trillion today, are quite stunning! (see, e.g., http://economistsview.typepad.com/economistsview/2012/08/would-lowering-the-interest-rate-on-excess-reserves-stimulate-the-economy.html )
Thanks for any elucidation anyone (except maybe Jared’s cat…) can provide.