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Does the Barro-Gordon Model Explain the Behavior of US Inflation? a Reexamination of the Empirical Evidence

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  • RUGE-MURCIA, Francisco J.

Abstract

This paper tests the predictions of the Barro-Gordon model using US data on inflation and unemployment. To that end, it constructs a general game-theoretical model with asymmetric preferences that nests the Barro-Gordon model and a version of Cukierman’s model as special cases. Likelihood Ratio tests indicate that the restriction imposed by the Barro-Gordon model is rejected by the data but the one imposed by the version of Cukierman’s model is not. Reduced-form estimates are consistent with the view that the Federal Reserve weights more heavily positive than negative unemployment deviations from the expected natural rate.

Suggested Citation

  • RUGE-MURCIA, Francisco J., 2002. "Does the Barro-Gordon Model Explain the Behavior of US Inflation? a Reexamination of the Empirical Evidence," Cahiers de recherche 2002-07, Universite de Montreal, Departement de sciences economiques.
    • Handle: RePEc:mtl:montde:2002-07
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    Keywords

    asymmetric eferences; udence; game-theoretical models of monetary licy; ARCH;
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