Investigating inflation persistence across monetary regimes
AbstractUnder inflation targeting inflation exhibits negative serial correlation in the United Kingdom, and little or no persistence in Canada, Sweden and New Zealand, and estimates of the indexation parameter in hybrid New Keynesian Phillips curves are either equal to zero, or very low, in all countries. Analogous results hold for the Euro area–and for France, Germany, and Italy–under European Monetary Union; for Switzerland under the new monetary regime; and for the United States, the United Kingdom and Sweden under the Gold Standard: under stable monetary regimes with clearly defined nominal anchors, inflation appears to be (nearly) purely forward-looking, so that no mechanism introducing backward-looking components is necessary to fit the data. These results question the notion that the intrinsic inflation persistence found in post-WWII U.S. data–captured, in hybrid New Keynesian Phillips curves, by a significant extent of backward-looking indexation–is structural in the sense of Lucas (1976), and suggest that building inflation persistence into macroeconomic models as a structural feature is potentially misleading. JEL Classification: E31, E42, E47, E52, E58
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 0851.
Date of creation: Jan 2008
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Other versions of this item:
- Luca Benati, 2008. "Investigating Inflation Persistence Across Monetary Regimes," The Quarterly Journal of Economics, MIT Press, vol. 123(3), pages 1005-1060, August.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-09 (All new papers)
- NEP-CBA-2008-02-09 (Central Banking)
- NEP-MAC-2008-02-09 (Macroeconomics)
- NEP-MON-2008-02-09 (Monetary Economics)
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