Advanced Search
MyIDEAS: Login to save this paper or follow this series

Explaining Inflation-Gap Persistence by a Time-Varying Taylor Rule

Contents:

Author Info

  • 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 U.S. inflation-gap persistence during the period 1975 to 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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://nbn-resolving.de/urn/resolver.pl?urn=urn:nbn:de:bsz:16-heidok-131178
File Function: Frontdoor page on HeiDOK
Download Restriction: no

File URL: http://archiv.ub.uni-heidelberg.de/volltextserver/13117/1/Conrad_Eife_2012_dp521.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0521.

as in new window
Length:
Date of creation: 17 Feb 2012
Date of revision:
Handle: RePEc:awi:wpaper:0521

Note: This paper is part of http://archiv.ub.uni-heidelberg.de/volltextserver/view/schriftenreihen/sr-3.html
Contact details of provider:
Postal: Grabengasse 14, D-69117 Heidelberg
Phone: +49-6221-54 2905
Fax: +49-6221-54 2914
Email:
Web page: http://www.awi.uni-heidelberg.de/
More information through EDIRC

Related research

Keywords: inflation-gap persistence; Great Moderation; monetary policy; New Keynesian model; Taylor rule;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Timothy Cogley & Giorgio E. Primiceri & Thomas J. Sargent, 2010. "Inflation-Gap Persistence in the US," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 43-69, January.
  2. Bruce E. Hansen, 1995. "Approximate Asymptotic P-Values for Structural Change Tests," Boston College Working Papers in Economics, Boston College Department of Economics 297., Boston College Department of Economics.
  3. Athanasios Orphanides & Simon Van_Norden, 2000. "The Reliability of Output Gap Estimates in Real Time," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0768, Econometric Society.
  4. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-01, C.V. Starr Center for Applied Economics, New York University.
  5. Kang Kyu Ho & Kim Chang-Jin & Morley James, 2009. "Changes in U.S. Inflation Persistence," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, De Gruyter, vol. 13(4), pages 1-23, September.
  6. Timothy Cogley & Argia M. Sbordone, 2008. "Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve," American Economic Review, American Economic Association, American Economic Association, vol. 98(5), pages 2101-26, December.
  7. Timothy Cogley & Thomas J. Sargent, 2003. "Drifts and volatilities: monetary policies and outcomes in the post WWII U.S," Working Paper, Federal Reserve Bank of Atlanta 2003-25, Federal Reserve Bank of Atlanta.
  8. Andrews, Donald W K & Chen, Hong-Yuan, 1994. "Approximately Median-Unbiased Estimation of Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 12(2), pages 187-204, April.
  9. Benati, Luca, 2008. "Investigating inflation persistence across monetary regimes," Working Paper Series, European Central Bank 0851, European Central Bank.
  10. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 943, Cowles Foundation for Research in Economics, Yale University.
  11. Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 8(2), pages 153-62, April.
  12. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2139, C.E.P.R. Discussion Papers.
  13. Andrew Levin & Jeremy Piger, 2003. "Is Inflation Persistence Intrinsic in Industrial Economies?," Computing in Economics and Finance 2003, Society for Computational Economics 298, Society for Computational Economics.
  14. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-03, C.V. Starr Center for Applied Economics, New York University.
  15. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 195-214, December.
  16. James H. Stock & Mark W. Watson, 2007. "Why Has U.S. Inflation Become Harder to Forecast?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(s1), pages 3-33, 02.
  17. Troy Davig & Taeyoung Doh, 2008. "Monetary policy regime shifts and inflation persistence," Research Working Paper, Federal Reserve Bank of Kansas City RWP 08-16, Federal Reserve Bank of Kansas City.
  18. Orphanides, Athanasios, 2001. "Monetary policy rules, macroeconomic stability and inflation: a view from the trenches," Working Paper Series, European Central Bank 0115, European Central Bank.
  19. Molodtsova, Tanya & Nikolsko-Rzhevskyy, Alex & Papell, David H., 2008. "Taylor rules with real-time data: A tale of two countries and one exchange rate," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(Supplemen), pages S63-S79, October.
  20. Pivetta, Frederic & Reis, Ricardo, 2007. "The persistence of inflation in the United States," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(4), pages 1326-1358, April.
  21. James H. Stock & Mark W. Watson, 2007. "Erratum to "Why Has U.S. Inflation Become Harder to Forecast?"," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(7), pages 1849-1849, October.
  22. Michael Woodford, 1996. "Control of the Public Debt: A Requirement for Price Stability?," NBER Working Papers 5684, National Bureau of Economic Research, Inc.
  23. Charles T. Carlstrom & Timothy S. Fuerst & Matthias Paustian, 2009. "Inflation Persistence, Monetary Policy, and the Great Moderation," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(4), pages 767-786, 06.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. 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.
  2. 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, Institute for Economic Forecasting, vol. 0(3), pages 132-143, October.
  3. Baaziz, Yosra & Labidi, Moez & Lahiani, Amine, 2013. "Does the South African Reserve Bank follow a nonlinear interest rate reaction function?," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 272-282.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:awi:wpaper:0521. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gabi Rauscher).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.