This paper investigates whether there has been a structural shift in inflation\nsince a recovery began in the OECD economies. For policy purposes, it is\nimportant to be sure that such shifts are significant statistically, are likely to\nbe sustained over the near future and be evenly distributed over the member\neconomies so that no one of them is damaged by anti-inflation measures\ntaken to help others. We approach the problem in two steps: first we examine\nthe circumstantial and informal evidence, and then conduct formal statistical\ntests for structural changes in euro area inflation in 2015-2016. We find no\nevidence of a structural change. An even distribution of inflation criterion is\nthe closest to being satisfied, but the other two are far from satisfied in any\nformal sense. The question remains: why has there been no inflation in the\nrecovery since 2014? To answer that question, we demonstrate how low\ngrowth in real wages and self-reinforcing low productivity growth produces\nslow output growth and low inflation; and how low real wages and productivity\nin turn lead to low investment. This model fits the data well, down to the\nlack of labour and total factor productivity, and to the substitution of cheaper\nlabour for excess capital stock. It implies a fall in investment spending (also\nseen in the data) that extends the period for which the low productivity-low\ninflation outcomes apply.
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