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Changes in the Federal Reserve’s Inflation Target: Causes and Consequences

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  • Peter N. Ireland

    ()
    (Boston College)

Abstract

This paper estimates a New Keynesian model to draw inferences about the behavior of the Federal Reserve’s unobserved inflation target. The results indicate that the target rose from 1 1/4 percent in 1959 to over 8 percent in the mid-to-late 1970s before falling back below 2 1/2 percent in 2004. The results also provide some support for the hypothesis that over the entire postwar period, Federal Reserve policy has systematically translated short-run price pressures set off by supply-side shocks into more persistent movements in inflation itself, although considerable uncertainty remains about the true source of shifts in the inflation target.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 607.

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Date of creation: 14 Jan 2005
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Handle: RePEc:boc:bocoec:607

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Keywords: inflation target; new Keynesian model; supply shocks; inflation;

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