Does inflation reduce productivity?
Kenneth Kuttner, Argia Sbordone
Our article examines the postwar evidence on the relationship between inflation and productivity in the U.S., paying particular attention to two questions that the existing literature has not resolved. One is whether the negative correlation documented by Rudebusch and Wilcox is a long-run phenomenon or simply reflects cyclical co-movements. The second question is what assumptions are required to interpret the correlation as a causal relationship and conclude that a permanent decrease in inflation would bring about a permanent increase in productivity.
