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The dynamics of US inflation: Can monetary policy explain the changes?

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  • Canova, Fabio
  • Ferroni, Filippo

Abstract

We investigate the relationship between monetary policy and inflation dynamics in the US using a medium scale structural model. The specification is estimated with Bayesian techniques and fits the data reasonably well. Policy shocks account for a part of the decline in inflation volatility; they have been less effective in triggering inflation responses over time and qualitatively account for the rise and fall in the level of inflation. A number of structural parameter variations contribute to these patterns.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 167 (2012)
Issue (Month): 1 ()
Pages: 47-60

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Handle: RePEc:eee:econom:v:167:y:2012:i:1:p:47-60

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Web page: http://www.elsevier.com/locate/jeconom

Related research

Keywords: New Keynesian model; Bayesian methods; Monetary policy; Inflation dynamics;

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References

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  1. Fernando E. Alvarez & Francesco Lippi, 2007. "Financial Innovation and the Transactions Demand for Cash," NBER Working Papers 13416, National Bureau of Economic Research, Inc.
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  8. Peter N. Ireland, 2000. "Money's Role in the Monetary Business Cycle," Boston College Working Papers in Economics 458, Boston College Department of Economics.
  9. Frank Smets & Raf Wouters, 2007. "Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach," Working Paper Research 109, National Bank of Belgium.
  10. Boivin, Jean & Giannoni, Marc, 2006. "Has Monetary Policy Become More Effective?," CEPR Discussion Papers 5463, C.E.P.R. Discussion Papers.
  11. Fabio Canova & Luca Gambetti, 2010. "Do Expectations Matter? The Great Moderation Revisited," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 183-205, July.
  12. Fabio Canova & Luca Gambetti, 2003. "Structural changes in the US economy: is there a role for monetary policy?," Economics Working Papers 918, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2008.
  13. Peter N. Ireland, 2000. "Sticky-Price Models of the Business Cycle: Specification and Stability," NBER Working Papers 7511, National Bureau of Economic Research, Inc.
  14. Giorgio Primiceri & Alejandro Justiniano, 2006. "The Time Varying Volatility of Macroeconomic Fluctuations," 2006 Meeting Papers 353, Society for Economic Dynamics.
  15. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
  16. Yongsung Chang & Taeyoung Doh & Frank Schorfheide, 2006. "Non-stationary hours in a DSGE model," Working Papers 06-3, Federal Reserve Bank of Philadelphia.
  17. Jesús Fernández-Villaverde & Juan F Rubio-Ramírez, 2007. "How Structural Are Structural Parameters?," Levine's Bibliography 843644000000000057, UCLA Department of Economics.
  18. Luca Gambetti & Evi Pappa & Fabio Canova, 2005. "The structural dynamics of US output and inflation: What explains the changes?," Economics Working Papers 921, Department of Economics and Business, Universitat Pompeu Fabra.
  19. Gabriel Perez-Quiros & Margaret M. McConnell, 2000. "Output Fluctuations in the United States: What Has Changed since the Early 1980's?," American Economic Review, American Economic Association, vol. 90(5), pages 1464-1476, December.
  20. John M. Roberts, 2006. "Monetary Policy and Inflation Dynamics," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
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Citations

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Cited by:
  1. Steffen Henzel & Elisabeth Wieland, 2013. "Synchronization and Changes in International Inflation Uncertainty," CESifo Working Paper Series 4194, CESifo Group Munich.
  2. Fabio Canova & Fernando J. Pérez Forero, 2012. "Estimating overidentified, nonrecursive, time-varying coefficients structural VARs," Economics Working Papers 1321, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Thomai Filippeli & Konstantinos Theodoridis, 2014. "DSGE Priors for BVAR Models," Working Papers 713, Queen Mary, University of London, School of Economics and Finance.
  4. Cristiano Cantore & Filippo Ferroni & Miguel A León-Ledesma, 2012. "Interpreting the Hours-Technology time-varying relationship," Studies in Economics 1201, Department of Economics, University of Kent.
  5. Gunnar Bårdsen & Luca Fanelli, 2013. "Frequentist evaluation of small DSGE models," Working Paper Series 14113, Department of Economics, Norwegian University of Science and Technology.
  6. Kemal Bagzibagli, 2012. "Monetary Transmission Mechanism and Time Variation in the Euro Area," Discussion Papers 12-12, Department of Economics, University of Birmingham.

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