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Reaching Inflation Stability

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Author Info
Antonio Moreno
Abstract

Inflation volatility has significantly declined over the last 20 years in the U.S. To find out why, I follow a structural approach. I estimate a complete New Keynesian model which imposes cross-equation restrictions on the time series of inflation, the output gap and the interest rate. I perform counterfactual analysis with two commonly used measures of inflation: Consumer Price Index (CPI) and Gross Domestic Product Deflator (GDPD). While the change in the propagation mechanism of the economy induced most of the CPI volatility drop, it played a smaller role in the reduction of GDPD volatility. Our maximum likelihood estimates imply that the most important factor behind the drop in inflation volatility was the more forward-looking price setting behavior of the 80s and 90s

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 269.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:269

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Keywords: Inflation Volatility Structural Model Monetary Policy Rule

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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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.:
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Cited by:
(explanations, 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.)

  1. Michael S. Hanson, 2006. "Varying Monetary Policy Regimes: A Vector Autoregressive Investigation," Wesleyan Economics Working Papers 2006-003, Wesleyan University, Department of Economics. [Downloadable!]
    Other versions:
  2. Miguel Casares, 2006. "A close look at model-dependent monetary policy design," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 451-470. [Downloadable!]
  3. Don Bredin & Stilianos Fountas, 2008. "Macroeconomic Uncertainty and Performance in the European Union and Implications for the objectives of Monetary Policy," Discussion Paper Series 2008_01, Department of Economics, University of Macedonia, revised Jan 2008. [Downloadable!]
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