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Reaching Inflation Stability

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Author Info
Antonio Moreno

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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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Related research
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; Dynamic Quantile Regressions
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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References listed on IDEAS
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Full references

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. Antonio Moreno, 2004. "The Feds Monetary Policy Rule: Past, Present and Future," Faculty Working Papers 02/04, School of Economics and Business Administration, University of Navarra. [Downloadable!]
  2. 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:
  3. 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!]
  4. 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!]
  5. Glenn D. Rudebusch & Tao Wu, 2004. "The recent shift in term structure behavior from a no-arbitrage macro-finance perspective," Working Papers in Applied Economic Theory 2004-25, Federal Reserve Bank of San Francisco. [Downloadable!]
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  6. Luis A. Gil-Alana & Antonio Moreno, 2009. "Fractional Integration and Structural Breaks in U.S. Macro Dynamics," Faculty Working Papers 02/09, School of Economics and Business Administration, University of Navarra. [Downloadable!]
  7. Martin Eichenbaum & Jonas D.M. Fisher, 2003. "Evaluating the Calvo model of sticky prices," Working Paper Series WP-03-23, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
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