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Explaining inflation-gap persistence by a time-varying Taylor rule

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  • Conrad, Christian
  • Eife, Thomas A.

Abstract

In a simple New Keynesian model, we derive a closed form solution for the inflation-gap persistence parameter as a function of the policy weights in the central bank’s Taylor rule. By estimating the time-varying weights that the FED attaches to inflation and the output gap, we show that the empirically observed changes in US inflation-gap persistence during the period 1975–2010 can be well explained by changes in the conduct of monetary policy. Our findings are in line with Benati’s (2008) view that inflation persistence should not be considered a structural parameter in the sense of Lucas.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 34 (2012)
Issue (Month): 2 ()
Pages: 419-428

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Handle: RePEc:eee:jmacro:v:34:y:2012:i:2:p:419-428

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Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: Inflation-gap persistence; Great moderation; Monetary policy; New Keynesian model; Taylor rule;

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References

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Cited by:
  1. Yanli LI, Hongfeng PENG & Hongfeng PENG, 2013. "Inflation Persistence in Nine Latin American Countries: Panel SURKSS Test with a Fourier Function," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 132-143, October.
  2. Baaziz, Yosra & Labidi, Moez & Lahiani, Amine, 2013. "Does the South African Reserve Bank follow a nonlinear interest rate reaction function?," Economic Modelling, Elsevier, vol. 35(C), pages 272-282.
  3. Edward N. Gamber & Jeffrey P. Liebner & Julie K. Smith, 2013. "Inflation Persistence: Revisited," Working Papers 2013-002, The George Washington University, Department of Economics, Research Program on Forecasting.

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