The Inflation Rate Disconnect Puzzle on the International Component of Trend Inflation and the Flattening of the Phillips Curve

Since 2000 U.S. inflation has remained both below target and silent to domestic slack. A trend-cycle BVAR decomposition shows that, starting from the ‘90s, despite well-anchored expectations, slow-moving imported ”cost-push” factors induced deflationary pressure keeping trend inflation below target. The cycle block provides evidence of a flattening of the Phillips curve, mainly attributable to a weaker wage pass-through. The business cycle behaviour of inflation is determined by a shock originating abroad, associated with the main bulk of volatility in the international prices of intermediate inputs and poorly connected to the domestic slack