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The output-inflation trade-off in the United States: has it changed since the late 1970s?

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  • John P. Judd
  • Jack H. Beebe
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    Abstract

    In recent years, the Federal Reserve has become more explicit in stating a goal of gradually reducing inflation to near zero rtes. An important consideration in seeking lower inflation is the transition cost (lost output and employment) incurred in the process. In this paper we ask whether the output-inflation trade-off in the U.S. is any more favorable now than it was in the high-inflation environment of the late 1970s and early 1980s. Our empirical estimates suggest that this trade-off is about the same as it was in the earlier period. In light of these results, we consider ways in which policies might be designed to reduce the amount of lost output associated with further disinflation.

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    File URL: http://www.frbsf.org/publications/economics/review/1993/93-3_25-34.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

    Volume (Year): (1993)
    Issue (Month): ()
    Pages: 25-34

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    Handle: RePEc:fip:fedfer:y:1993:p:25-34:n:3

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    Related research

    Keywords: Monetary policy - United States ; Inflation (Finance);

    References

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    1. John P. Judd & Bharat Trehan, 1992. "Money, credit, and M2," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep4.
    2. Blackburn, Keith & Christensen, Michael, 1989. "Monetary Policy and Policy Credibility: Theories and Evidence," Journal of Economic Literature, American Economic Association, vol. 27(1), pages 1-45, March.
    3. Laurence Ball, 1993. "What determines the sacrifice ratio?," Working Papers 93-21, Federal Reserve Bank of Philadelphia.
    4. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Henry C. Wallich, 1984. "Recent techniques of monetary policy," Economic Review, Federal Reserve Bank of Kansas City, issue May, pages 21-30.
    6. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 1-82.
    7. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
    8. Thomas J. Sargent, 1981. "Stopping moderate inflations: the methods of Poincaré and Thatcher," Working Papers 1, Federal Reserve Bank of Minneapolis.
    9. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
    10. John P. Judd & Brian Motley, 1992. "Controlling inflation with an interest rate instrument," Economic Review, Federal Reserve Bank of San Francisco, pages 3-22.
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    Cited by:
    1. Swank, Otto H., 1998. "Partisan Policies, Macroeconomic Performance and Political Support," Journal of Macroeconomics, Elsevier, vol. 20(2), pages 367-386, April.

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