Inflation persistence: Alternative interpretations and policy implications
In: Journal of Monetary Economics, Band 54, Heft 5, S. 1311-1339
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In: Journal of Monetary Economics, Band 54, Heft 5, S. 1311-1339
In this paper, I consider the policy implications of two alternative structural interpretations of observed inflation persistence, which correspond to two alternative specifications of the new Keynesian Phillips curve (NKPC). The first specification allows for some degree of intrinsic persistence by way of a lagged inflation term in the NKPC. The second is a purely forward-looking model, in which expectations farther into the future matter and coefficients are time-varying. In this specification, most of the observed inflation persistence is attributed to fluctuations in the underlying inflation trend, which are a consequence of monetary policy rather than a structural feature of the economy. With a simple quantitative exercise, I illustrate the consequences of implementing monetary policy, assuming a degree of intrinsic persistence that differs from the true one. The results suggest that the costs of implementing a stabilization policy when the policymaker overestimates the degree of intrinsic persistence are potentially higher than the costs of ignoring actual structural persistence; the result is more clear-cut when the policymaker minimizes a welfare-based loss function.
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In: NBER Working Paper No. w13556
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In: Journal of Monetary Economics, Band 52, Heft 6, S. 1183-1197
In: Journal of Monetary Economics, Band 49, Heft 2, S. 265-292
In: Journal of Monetary Economics, Band 38, Heft 2, S. 331-361
In: International Dimensions of Monetary Policy, S. 547-590
In: American economic review, Band 98, Heft 5, S. 2101-2126
ISSN: 1944-7981
Purely forward-looking versions of the New Keynesian Phillips curve (NKPC) generate too little inflation persistence. Some authors add ad hoc backward-looking terms to address this shortcoming. We hypothesize that inflation persistence results mainly from variation in the long-run trend component of inflation, which we attribute to shifts in monetary policy. We derive a version of the NKPC that incorporates a time-varying inflation trend and examine whether it explains the dynamics of inflation. When drift in trend inflation is taken into account, a purely forward-looking version of the model fits the data well, and there is no need for backward-looking components. (JEL E12, E31, E52)
In: Journal of economic dynamics & control, Band 12, Heft 2-3, S. 255-296
ISSN: 0165-1889
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In: Journal of Monetary Economics, Band 72, S. 131-147
In: FRB Richmond Working Paper No. 14-07
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Working paper
In: Liberty Street Economics
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In: NBER International Seminar on Macroeconomics, Band 2007, Heft 1, S. 131-172
ISSN: 2150-8372
In: Annual Review of Economics, Band 10, S. 615-643
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