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

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Author Info
John P. Judd
Jack H. Beebe
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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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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Keywords: Monetary policy - United States ; Inflation (Finance);

References listed on IDEAS
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  1. Laurence Ball, 1993. "What determines the sacrifice ratio?," Working Papers 93-21, Federal Reserve Bank of Philadelphia.
    Other versions:
  2. John P. Judd & Bharat Trehan, 1992. "Money, credit, and M2," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Sep 4. [Downloadable!]
  3. Thomas J. Sargent, 1981. "Stopping moderate inflations: the methods of Poincaré and Thatcher," Working Papers 0, Federal Reserve Bank of Minneapolis. [Downloadable!]
  4. 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.
  5. 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. [Downloadable!] (restricted)
  6. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  7. 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. [Downloadable!] (restricted)
  8. John P. Judd & Brian Motley, 1992. "Controlling inflation with an interest rate instrument," Economic Review, Federal Reserve Bank of San Francisco, pages 3-22. [Downloadable!]
  9. 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(1988-1), pages 1-82. [Downloadable!]
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