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The Great Inflation and the Greenbook

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Author Info

  • Carboni, Giacomo
  • Ellison, Martin

Abstract

Can the story of evolving Federal Reserve beliefs in The Conquest of American Inflation simultaneously explain the Great Inflation and the forecasts published in the Greenbook during that time? If Sargent is correct then evolving beliefs should be reflected not only in policy outcomes but also in Greenbook forecasts. In this paper they are. By conditioning on the Greenbook, it is show that both inflation outcomes and Greenbook forecasts can be rationalised by evolving beliefs. The results improve on recent empirical evidence that has been criticised for relying on unrealistic beliefs that produce forecasts inconsistent with the Greenbook.

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File URL: http://www.sciencedirect.com/science/article/B6VBW-4WMDHR6-1/2/255e82a2af0f42a2f074786f07d5404d
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 56 (2009)
Issue (Month): 6 (September)
Pages: 831-841

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Handle: RePEc:eee:moneco:v:56:y:2009:i:6:p:831-841

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Web page: http://www.elsevier.com/locate/inca/505566

Related research

Keywords: Great Inflation Greenbook Learning Monetary policy;

References

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  1. Thomas Sargent & Noah Williams & Tao Zha, 2006. "Shocks and Government Beliefs: The Rise and Fall of American Inflation," American Economic Review, American Economic Association, vol. 96(4), pages 1193-1224, September.
  2. Brian Sack & Volker Wieland, 1999. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Finance and Economics Discussion Series 1999-39, Board of Governors of the Federal Reserve System (U.S.).
  3. Thomas J. Sargent, 2008. "Evolution and Intelligent Design," American Economic Review, American Economic Association, vol. 98(1), pages 5-37, March.
  4. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May.
  5. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March.
  6. Sharon Kozicki & P. Tinsley, 2006. "Minding the Gap: Central Bank Estimates of the Unemployment Natural Rate," Computational Economics, Society for Computational Economics, vol. 27(2), pages 295-327, May.
  7. Cogley, Timothy & Sargent, Thomas J., 2005. "The conquest of U.S. inflation: learning and robustness to model uncertainty," Working Paper Series 0478, European Central Bank.
  8. Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, vol. 48(2), pages 337-368, August.
  9. Thomas J. Sargent & Noah Williams, 2003. "Impacts of priors on convergence and escapes from Nash inflation," Working Paper 2003-14, Federal Reserve Bank of Atlanta.
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Citations

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Cited by:
  1. Kevin X.D. Huang & Zheng Liu & Tao Zha, 2008. "Learning, Adaptive Expectations, and Technology Shocks," Vanderbilt University Department of Economics Working Papers 0807, Vanderbilt University Department of Economics.
  2. Evans, George & Honkapohja, Seppo, 2008. "Expectations, Learning and Monetary Policy: An Overview of Recent Research," SIRE Discussion Papers 2008-03, Scottish Institute for Research in Economics (SIRE).
  3. Castelnuovo, Efrem, 2010. "Trend inflation and macroeconomic volatilities in the post-WWII U.S. economy," The North American Journal of Economics and Finance, Elsevier, vol. 21(1), pages 19-33, March.
  4. Davide Debortoli & Ricardo Nunes, 2011. "Monetary regime switches and unstable objectives," International Finance Discussion Papers 1036, Board of Governors of the Federal Reserve System (U.S.).
  5. Arturo OrmeƱo, 2011. "Using Survey Data on Inflation Expectations in the Estimation of Learning and Rational Expectations Models," CESifo Working Paper Series 3552, CESifo Group Munich.

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