US inflation set to surge due to changing labor market dynamics
US inflation didn't rise much during the Great Recession despite high spare capacity. Short-term unemployment gap and non-linearities in the Phillips curve could cause sudden inflation increase. A model considering inflation persistence, expectations, supply shocks, and labor market slack explains post-recession inflation well. Time-varying slope coefficients in Phillips curve models perform better than constant-slope or non-linear models from 2008 to 2015.