One Hundred Inflation Shocks: Seven Stylized Facts

By Anil Ari, Carlos Mulas-Granados, Victor Mylonas, Lev Ratnovski, Wei Zhao

September 15, 2023

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Anil Ari, Carlos Mulas-Granados, Victor Mylonas, Lev Ratnovski, and Wei Zhao. One Hundred Inflation Shocks: Seven Stylized Facts, (USA: International Monetary Fund, 2023) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Disinflation, Fiscal policy, Fiscal stance, Inflation, Oil prices, Prices

Keywords: 1973–79 Oil Crises, Disinflation, Episode selection, Fiscal stance, Global, Inflation, Inflation shock, Inflation Shocks, Involved premature celebration, Monetary Policy, Oil prices, Shock episode, Termsof- Trade Shocks, Terms-of-trade shock

Publication Details

Pages:

64
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/190
Stock No:

WPIEA2023190
ISBN:

9798400254369
ISSN:

1018-5941

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