Advanced Search
MyIDEAS: Login to save this paper or follow this series

Trend Inflation, Wage Indexation, and Determinacy in the U.S

Contents:

Author Info

  • Guido Ascari

    (Department of Economics and Quantitative Methods, University of Pavia)

  • Nicola Branzoli

    (University of Wisconsin Madison)

  • Efrem Castelnuovo

    (University of Padova and Bank of Finland)

Abstract

We combine an estimated monetary policy rule featuring time-varying trend inflation and stochastic coefficients with a medium scale New Keynesian framework calibrated on the U.S. economy. We find the impact of variations in trend inflation on the likelihood of equilibrium determinacy to be both modest and limited to the second half of the 1970s. In contrast, our counterfactual exercises suggest that the change in the Federal Reserve's policy response to inflation is likely to have been the main driver leading the U.S. economy to a unique equilibrium during the Great Moderation. We highlight the impact of wage indexation on policymakers' ability to induce economic stability, and provide fresh evidence on the relationship between trend inflation, wage indexation and determinacy in the post-WWII U.S. economic environment. Further simulations show that rising the Federal Reserve's inflation target to four percent would be consistent with equilibrium uniqueness conditional on a policy as the one estimated on the U.S. post-1982 sample period.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://economia.unipv.it/docs/dipeco/quad/ps/RePEc/pav/wpaper/q153.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 153.

as in new window
Length: 27 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:pav:wpaper:153

Contact details of provider:
Postal: Via S. Felice, 5 - 27100 Pavia
Phone: +39/0382/506208
Fax: +39/0382/304226
Web page: http://dipartimenti.unipv.eu/on-dip/epmq/Home.html
More information through EDIRC

Related research

Keywords: Monetary Policy; Trend Inflation; Great Moderation; Determinacy; Wage indexation.;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Takushi Kurozumi & Willem Van Zandweghe, 2012. "Firm-specific labor, trend inflation, and equilibrium stability," Research Working Paper RWP 12-09, Federal Reserve Bank of Kansas City.
  2. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2013. "Unemployment and Business Cycles," NBER Working Papers 19265, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pav:wpaper:153. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Paolo Bonomolo).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.