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Title: Understanding trend inflation through the lens of the goods and services sectors Authors:  Benjamin Wong - Monash University (Australia) [presenting]
Abstract: The goods and services sectors are distinguished in an otherwise standard unobserved components model of U.S. inflation. The main finding is that since the 1990s, overall variation in aggregate trend inflation has been predominantly driven by the services sector, while both sectors used to contribute to the overall variation in aggregate trend inflation before the 1990s. We pinpoint two key changes in sector-specific inflation dynamics which led to our main result: (i) a large fall in the volatility of trend goods inflation; and (ii) the disappearance of comovement between trend goods and trend services inflation. While our results appear to be robust to inflation developments associated with the recent Covid-19 pandemic, we caveat that estimates obtained during the pandemic period are associated with increased estimation uncertainty.