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The rise and fall of U.S. inflation persistence

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Author Info
Meredith Beechey
Par Osterholm

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Abstract

This paper estimates the path of inflation persistence in the United States over the last 50 years and draws implications about the evolution of the Federal Reserve's monetary-policy preferences. Standard models of central-bank optimization predict persistent inflation outcomes. Time variation of the central bank's preference for output stability should be reflected in changes in inflation persistence. We estimate an ARMA(1,q) model with a time-varying autoregressive parameter for monthly U.S. inflation data from 1955 to 2006. The coefficients provide an estimate of the inflation target and the path of inflation persistence. The estimated inflation target over the sample is approximately 2.8 percent and we find that inflation persistence declined substantially during Volcker and Greenspan's tenures to a level significantly less than one and significantly below that of the 1970s and early 1980s.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2007-26.

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Date of creation: 2007
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Handle: RePEc:fip:fedgfe:2007-26

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Related research
Keywords: Inflation (Finance) ; Monetary policy - United States;

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This paper has been announced in the following NEP Reports: 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.:
  1. Carlsson, Mikael & Westermark, Andreas, 2006. "Monetary Policy and Staggered Wage Bargaining when Prices are Sticky," Working Paper Series 199, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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  2. Blomquist, Sören & Christiansen, Vidar, 2007. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates," Working Paper Series 2007:7, Uppsala University, Department of Economics. [Downloadable!]
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  3. Ohlsson, Henry, 2007. "Tax avoidance - a natural experiment," Working Paper Series 2007:13, Uppsala University, Department of Economics. [Downloadable!]
  4. Ohlsson, Henry, 2007. "The equal division puzzle – empirical evidence on intergenerational transfers in Sweden," Working Paper Series 2007:10, Uppsala University, Department of Economics. [Downloadable!]
  5. Elinder, Mikael, 2006. "Local Economies and General Elections," Working Paper Series 2007:1, Uppsala University, Department of Economics. [Downloadable!]
  6. Andersson, Christian, 2007. "Teacher density and student achievement in Swedish compulsory schools," Working Paper Series 2007:5, Uppsala University, Department of Economics. [Downloadable!]
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  7. Post, Erik, 2006. "Foreign exchange market interventions as monetary policy," Working Paper Series 2006:21, Uppsala University, Department of Economics. [Downloadable!]
  8. Österholm, Pär, 2006. "Incorporating Judgement in Fan Charts," Working Paper Series 2006:30, Uppsala University, Department of Economics. [Downloadable!]
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  9. Annika Alexius & Bertil Holmlund, 2007. "Monetary Policy and Swedish Unemployment Fluctuations," Kiel Working Papers 1329, Kiel Institute for the World Economy. [Downloadable!]
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  10. Carlsson, Mikael & Westermark, Andreas, 2007. "Optimal Monetary Policy under Downward Nominal Wage Rigidity," Working Paper Series 2007:15, Uppsala University, Department of Economics. [Downloadable!]
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  11. Tobias Lindhe & Jan Södersten, 2006. "The Equity Trap, the Cost of Capital and the Firm’s Growth Path," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  12. Edmark, Karin & Ågren, Hanna, 2006. "Identifying Strategic Interactions in Swedish Local Income Tax Policies," Working Paper Series 2006:22, Uppsala University, Department of Economics. [Downloadable!]
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  13. Ågren, Martin, 2006. "Prospect Theory and Higher Moments," Working Paper Series 2006:24, Uppsala University, Department of Economics. [Downloadable!]
  14. Björnerstedt, Jonas & Westermark, Andreas, 2006. "Delay in Bargaining with Externalities," Working Paper Series 2006:29, Uppsala University, Department of Economics. [Downloadable!]
  15. Post, Erik, 2007. "Macroeconomic imbalances and exchange rate regime shifts," Working Paper Series 2007:4, Uppsala University, Department of Economics. [Downloadable!]
  16. Douhan, Robin & Nordberg, Anders, 2007. "Is the elephant stepping on its trunk? The problem of India´s unbalanced growth," Working Paper Series 2007:16, Uppsala University, Department of Economics. [Downloadable!]
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  17. Ågren, Martin, 2006. "Does Oil Price Uncertainty Transmit to Stock Markets?," Working Paper Series 2006:23, Uppsala University, Department of Economics. [Downloadable!]
  18. Hallberg, Daniel & Lagergren, Mårten, 2007. "Moving in and out of public geriatric care in Sweden," Working Paper Series 2007:11, Uppsala University, Department of Economics. [Downloadable!]
  19. Engström, Per & Kolm, Ann-Sofie & Liang, Che-Yuan, 2006. "Maternal Addiction to Parental Leave," Working Paper Series 2006:28, Uppsala University, Department of Economics. [Downloadable!]
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  20. Kjellberg, David & Post, Erik, 2007. "A Critical Look at Measures of Macroeconomic Uncertainty," Working Paper Series 2007:14, Uppsala University, Department of Economics. [Downloadable!]
  21. Engström, Per, 2007. "Wage Formation and Redistribution," Working Paper Series 2007:12, Uppsala University, Department of Economics. [Downloadable!]
  22. Merrouche, Ouarda, 2007. "The Long Term Impact of French Settlement on Education in Algeria," Working Paper Series 2007:2, Uppsala University, Department of Economics. [Downloadable!]
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  23. Meredith Beechey & Par Osterholm, 2007. "The rise and fall of U.S. inflation persistence," Finance and Economics Discussion Series 2007-26, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  24. Jordahl, Henrik & Liang, Che-Yuan, 2006. "Merged Municipalities, Higher Debt: On Free-riding and the Common Pool Problem in Politics," Ratio Working Papers 107, The Ratio Institute. [Downloadable!]
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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. Ohlsson, Henry, 2007. "The legacy of the Swedish gift and inheritance tax, 1884–2004," Working Paper Series 2007:23, Uppsala University, Department of Economics. [Downloadable!]
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  2. Carlsson, Mikael & Lyhagen, Johan & Österholm, Pär, 2007. "Testing for Purchasing Power Parity in Cointegrated Panels," Working Paper Series 2008:1, Uppsala University, Department of Economics. [Downloadable!]
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  3. Melecky, Martin & Rodrıguez Palenzuela, Diego & Soderstrom, Ulf, 2008. "Inflation Target Transparency and the Macroeconomy," MPRA Paper 10545, University Library of Munich, Germany. [Downloadable!]
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  4. Liang, Che-Yuan, 2007. "Is There an Incumbency Advantage or a Cost of Ruling in Proportional Election Systems?," Working Paper Series 2007:28, Uppsala University, Department of Economics. [Downloadable!]
  5. Liang, Che-Yuan, 2008. "Collective Lobbying in Politics: Theory and Empirical Evidence from Sweden," Working Paper Series 2008:2, Uppsala University, Department of Economics. [Downloadable!]
  6. Berger, Helge & Österholm, Pär, 2007. "Does Money Growth Granger-Cause Inflation in the Euro Area? Evidence from Out-of-Sample Forecasts Using Bayesian VARs," Working Paper Series 2007:30, Uppsala University, Department of Economics. [Downloadable!]
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  7. Beechey, Meredith & Österholm, Pär, 2007. "The Rise and Fall of U.S. Inflation Persistence," Working Paper Series 2007:18, Uppsala University, Department of Economics. [Downloadable!]
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This page was last updated on 2009-11-18.

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