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Trend inflation and macroeconomic volatilities in the post-WWII U.S. economy

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  • Castelnuovo, Efrem

Abstract

This paper estimates a new-Keynesian model of the business cycle for the post-WWII U.S. economy and performs theoretical and counterfactual simulations to isolate the role played by systematic monetary policy and macroeconomic shocks in shaping the volatilities of inflation and output. Shocks to trend inflation are found to be a key-driver of raw inflation and the inflation gap. In contrast, shocks to output are likely to have played a major role as regards the volatility of the business cycle. Overall, my results work against the [`]good policy only' interpretation of the U.S. Great Moderation.

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Bibliographic Info

Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 21 (2010)
Issue (Month): 1 (March)
Pages: 19-33

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Handle: RePEc:eee:ecofin:v:21:y:2010:i:1:p:19-33

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Web page: http://www.elsevier.com/locate/inca/620163

Related research

Keywords: New-Keynesian model Great Moderation Good policy Good luck Time-varying inflation target;

References

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Citations

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Cited by:
  1. Jang, Tae-Seok & Sacht, Stephen, 2012. "Identification of Animal Spirits in a Bounded Rationality Model: An Application to the Euro Area," MPRA Paper 37399, University Library of Munich, Germany.
  2. Franke, Reiner & Jang, Tae-Seok & Sacht, Stephen, 2012. "Moment matching versus Bayesian estimation: Backward-looking behaviour in a New-Keynesian baseline model," Economics Working Papers 2012-08, Christian-Albrechts-University of Kiel, Department of Economics.
  3. Jang, Tae-Seok, 2012. "Structural estimation of the New-Keynesian model: A formal test of backward- and forward-looking behavior," Economics Working Papers 2012-07, Christian-Albrechts-University of Kiel, Department of Economics.
  4. Di Bartolomeo, Giovanni & Giuli, Francesco, 2011. "Fiscal and monetary interaction under monetary policy uncertainty," European Journal of Political Economy, Elsevier, vol. 27(2), pages 369-375, June.
  5. Jang, Tae-Seok, 2012. "Structural estimation of the New-Keynesian Model: a formal test of backward- and forward-looking expectations," MPRA Paper 39669, University Library of Munich, Germany.
  6. Franke, Reiner & Jang, Tae-Seok & Sacht, Stephen, 2011. "Moment matching versus Bayesian estimation: Backward-looking behaviour in the new-Keynesian three-equations model," Economics Working Papers 2011,10, Christian-Albrechts-University of Kiel, Department of Economics.
  7. Jang, Tae-Seok, 2012. "Structural estimation of the New-Keynesian Model: a formal test of backward- and forward-looking expectations," MPRA Paper 40278, University Library of Munich, Germany.

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