Evolving U.S. Monetary Policy and The Decline of Inflation Predictability
AbstractBased on a structural VAR with time-varying parameters and stochastic volatility for the post-WWII U.S., we document a negative correlation between the evolution of the long-run coefficient on inflation in the structural monetary rule and the evolution of the persistence and predictability of inflation relative to a trend component. Using an estimated sticky-price model, we show that a more aggressive policy stance towards inflation causes a decline in inflation predictability. (JEL: E37, E52, E58) (c) 2008 by the European Economic Association.
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Bibliographic InfoArticle provided by MIT Press in its journal Journal of the European Economic Association.
Volume (Year): 6 (2008)
Issue (Month): 2-3 (04-05)
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Other versions of this item:
- Luca Benati & Paolo Surico, 2007. "Evolving U.S. monetary policy and the decline of inflation predictability," Working Paper Series 824, European Central Bank.
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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