This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Learning, Sticky Inflation, and the Sacrifice Ratio

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
John M. Roberts

Additional information is available for the following registered author(s):

Abstract

Over the past forty years, U.S. inflation has exhibited highly persistent movements. Moreover, these shifts in inflation have typically had real consequences, implying a "sacrifice ratio," whereby disinflations are typically associated with recessions and persistent increases in inflation often associated with booms. One hypothesis about the source of the sacrifice ratio is that inflation - and not just the price level - is sticky. Another is that private-sector agents typically must infer changes in inflation objectives indirectly from central bank interest- rate policy. The resulting learning process can lead to a sacrifice ratio trade-off. In this paper, I allow for both sticky inflation and learning in interpreting U.S. macroeconomic developments since 1955. Two key empirical findings are, first, that allowing for learning reduces the evidence for sticky inflation. Second, there is less evidence for sticky inflation in the post-1983 period than earlier. Indeed, in some estimates, there is little evidence of sticky inflation in the period since 1983, although this result is sensitive to the details of the specification. Nonetheless, simulation results suggest that for realistic models, the sacrifice ratio can be accounted for entirely by learning.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ifw-members.ifw-kiel.de/publications/learning-sticky-inflation-and-the-sacrifice-ratio/kap1365.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1365.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 35 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:kie:kieliw:1365

Contact details of provider:
Phone: +49 431 8814-1
Fax: +49 431 85853
Email:
Web page: http://www.ifw-kiel.de

For technical questions regarding this item, or to correct its listing, contact: (Dieter Stribny).

Related research
Keywords:

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. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1295-1328, November. [Downloadable!] (restricted)
    Other versions:
  2. Martin Eichenbaum & Jonas D.M. Fisher, 2004. "Evaluating the Calvo Model of Sticky Prices," NBER Working Papers 10617, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Milani, Fabio, 2006. "A Bayesian DSGE Model with Infinite-Horizon Learning: Do "Mechanical" Sources of Persistence Become Superfluous?," MPRA Paper 809, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Olivier Blanchard & Jordi Gali, 2005. "Real Wage Rigidities and the New Keynesian Model," NBER Working Papers 11806, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April. [Downloadable!] (restricted)
  6. Erceg, Christopher J. & Levin, Andrew T., 2003. "Imperfect credibility and inflation persistence," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 915-944, May. [Downloadable!] (restricted)
    Other versions:
  7. Barsky, Robert B., 1987. "The Fisher hypothesis and the forecastability and persistence of inflation," Journal of Monetary Economics, Elsevier, vol. 19(1), pages 3-24, January. [Downloadable!] (restricted)
  8. Kozicki, Sharon & Tinsley, P. A., 2001. "Shifting endpoints in the term structure of interest rates," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 613-652, June. [Downloadable!] (restricted)
    Other versions:
  9. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October. [Downloadable!] (restricted)
    Other versions:
  10. Christina D. Romer & David H. Romer, 2002. "The evolution of economic understanding and postwar stabilization policy," Proceedings, Federal Reserve Bank of Kansas City, pages 11-78. [Downloadable!]
  11. Andrew T. Levin & Jeremy M. Piger, 2004. "Is inflation persistence intrinsic in industrial economies?," Working Paper Series 334, European Central Bank. [Downloadable!]
    Other versions:
  12. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09. [Downloadable!] (restricted)
    Other versions:
  13. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February. [Downloadable!] (restricted)
    Other versions:
  14. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September. [Downloadable!] (restricted)
    Other versions:
  15. Christina D. Romer & David H. Romer, 2002. "The Evolution of Economic Understanding and Postwar Stabilization Policy," NBER Working Papers 9274, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Fuhrer, Jeff & Moore, George, 1995. "Inflation Persistence," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 127-59, February. [Downloadable!] (restricted)
    Other versions:
  17. Christina D. Romer & David H. Romer, 2004. "Choosing the Federal Reserve Chair: Lessons from History," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 129-162, Winter. [Downloadable!] (restricted)
  18. Timothy Cogley & Argia M. Sbordone, 2006. "Trend inflation and inflation persistence in the New Keynesian Phillips Curve," Staff Reports 270, Federal Reserve Bank of New York. [Downloadable!]
  19. Douglas W. Elmendorf, 1996. "The effect of interest-rate changes on household saving and consumption: a survey," Finance and Economics Discussion Series 96-27, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  20. Ball, Laurence, 1995. "Disinflation with imperfect credibility," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 5-23, February. [Downloadable!] (restricted)
  21. Alexander L. Wolman, 2001. "A primer on optimal monetary policy with staggered price-setting," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 27-52. [Downloadable!]
  22. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July. [Downloadable!] (restricted)
    Other versions:
  23. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March. [Downloadable!] (restricted)
  24. Taylor, John B, 1983. "Union Wage Settlements during a Disinflation," American Economic Review, American Economic Association, vol. 73(5), pages 981-93, December. [Downloadable!] (restricted)
    Other versions:
  25. William English & William Nelson & Brian Sack, 2003. "Interpreting the Significance of the Lagged Interest Rate in Estimated Monetary Policy Rules," Contributions to Macroeconomics, Berkeley Electronic Press, vol. 3(1), pages 1073-1073. [Downloadable!] (restricted)
  26. Lawrence J. Christiano, Martin Eichenbaum, and Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    Other versions:
  27. Peter N. Ireland, 2006. "Changes in the Federal Reserve's Inflation Target: Causes and Consequences," NBER Working Papers 12492, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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. Michael T. Kiley, 2008. "Monetary policy actions and long-run inflation expectations," Finance and Economics Discussion Series 2008-03, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
Statistics
Access and download statistics

Did you know? IDEAS also indexes books.

This page was last updated on 2008-7-1.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.