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Monetary Policy and Inflation Dynamics

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Roberts, John M

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Abstract

Since the early 1980s, the U.S. economy has changed in some important ways: inflation now rises considerably less when unemployment is low, and the volatility of output and inflation have fallen sharply. This paper examines whether changes in monetary policy can account for these changes in the economy. The results suggest that changes in monetary policy can account for most or all of the change in the inflationunemployment relationship. In addition, changes in policy can explain a large proportion of the reduction in the volatility of the output gap.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 812.

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Date of creation: 06 Jul 2006
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Publication status: Published in International Journal of Central Banking Number 3.Volume 2(2006): pp. 193-230
Handle: RePEc:pra:mprapa:812

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G00 - Financial Economics - - General - - - General
G0 - Financial Economics - - General

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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. Rudebusch, Glenn D, 2005. "Assessing the Lucas Critique in Monetary Policy Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 245-72, April.
    Other versions:
  3. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Gordon, Robert J, 1980. "A Consistent Characterization of a Near-Century of Price Behavior," American Economic Review, American Economic Association, vol. 70(2), pages 243-49, May. [Downloadable!] (restricted)
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  5. Andrew Levin & Volker Wieland & John C. Williams, 1998. "Robustness of simple monetary policy rules under model uncertainty," Finance and Economics Discussion Series 1998-45, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  6. David Reifschneider & Robert Tetlow & John Williams, 1999. "Aggregate disturbances, monetary policy, and the macroeconomy: the FRB/US perspective," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-19. [Downloadable!]
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  10. 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)
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  11. Jean Boivin & Marc P. Giannoni, 2003. "Has Monetary Policy Become More Effective?," NBER Working Papers 9459, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Fuhrer, Jeff & Moore, George, 1995. "Inflation Persistence," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 127-59, February. [Downloadable!] (restricted)
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  13. Andrew Atkeson & Lee E. Ohanian., 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11. [Downloadable!]
  14. 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)
  15. Laurence Ball, 2000. "Near-rationality and inflation in two monetary regimes," Proceedings, Federal Reserve Bank of San Francisco. [Downloadable!]
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  18. Flint Brayton & Eileen Mauskopf & David Reifschneider & Peter Tinsley & John Williams, 1997. "The role of expectations in the FRB/US macroeconomic model," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 227-245. [Downloadable!]
  19. Laurence Ball, 2000. "Near-Rationality and Inflation in Two Monetary Regimes," Economics Working Paper Archive 435, The Johns Hopkins University,Department of Economics. [Downloadable!]
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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. Peter N. Ireland, 2005. "Changes in the Federal Reserve's inflation target: causes and consequences," Working Papers 05-13, Federal Reserve Bank of Boston. [Downloadable!]
    Other versions:
  2. Troy Davig, 2007. "Phillips curve instability and optimal monetary policy," Research Working Paper RWP 07-04, Federal Reserve Bank of Kansas City. [Downloadable!]
  3. Alon Binyamini & Assaf Razin, 2008. "Inflation-Output Tradeoff as Equilibrium Outcome of Globalization," NBER Working Papers 14379, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Samuel Reynard, 2007. "Maintaining low inflation: money, interest rates, and policy stance," Working Paper Series 756, European Central Bank. [Downloadable!]
    Other versions:
  5. 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!]
  6. Karen E. Dynan & Douglas W. Elmendorf & Daniel E. Sichel, 2005. "Can financial innovation help to explain the reduced volatility of economic activity?," Finance and Economics Discussion Series 2005-54, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  7. Assaf Razin & Alon Binyamini, 2007. "Flattened Inflation-Output Tradeoff and Enhanced Anti-Inflation Policy: Outcome of Globalization?," NBER Working Papers 13280, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Alessandro Calza, 2008. "Globalisation, domestic inflation and global output gaps - evidence from the euro area," Working Paper Series 890, European Central Bank. [Downloadable!]
  9. Frederic S. Mishkin, 2008. "Globalization, Macroeconomic Performance, and Monetary Policy," NBER Working Papers 13948, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Mark A. Wynne & Erasmus K. Kersting, 2007. "Openness and inflation," Staff Papers, Federal Reserve Bank of Dallas, issue Apr. [Downloadable!]
  11. David L. Reifschneider & John M. Roberts, 2005. "Expectations formation and the effectiveness of strategies for limiting the consequences of the zero bound on interest rates," Finance and Economics Discussion Series 2005-70, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  12. Alessandro Calza, 2008. "Globalisation, domestic inflation and the global output gaps: evidence from the Euro era," Globalization and Monetary Policy Institute Working Paper 13, Federal Reserve Bank of Dallas. [Downloadable!]
  13. Todd E. Clark & Michael W. McCracken, 2006. "Forecasting of small macroeconomic VARs in the presence of instabilities," Research Working Paper RWP 06-09, Federal Reserve Bank of Kansas City. [Downloadable!]
  14. Alon Binyamini & Assaf Razin, 2007. "Flattened Inflation-Output Tradeoff and Enhanced Anti-Inflation Policy as an Equilibrium Outcome of Globalization," Working Papers 232007, Hong Kong Institute for Monetary Research. [Downloadable!]
  15. Todd E. Clark & Taisuke Nakata, 2008. "Has the behavior of inflation and long-term inflation expectations changed?," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 17-50. [Downloadable!]
  16. Doyle, Matthew, 2006. "Empirical Phillips Curves in OECD Countries: Has There Been A Common Breakdown?," Staff General Research Papers 12684, Iowa State University, Department of Economics. [Downloadable!]
  17. Kevin Lansing, . "Time Varying U.S. Inflation Dynamics and the New Keynesian Phillips Curve," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics. [Downloadable!] (restricted)
    Other versions:
  18. Robert J. Tetlow & Brian Ironside, 2006. "Real-time model uncertainty in the United States - the Fed from 1996-2003," Working Paper Series 610, European Central Bank. [Downloadable!]
    Other versions:
  19. Jane Ihrig & Steven B. Kamin & Deborah Lindner & Jaime Marquez, 2007. "Some simple tests of the globalization and inflation hypothesis," International Finance Discussion Papers 891, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  20. Adamcik, Santiago, 2008. "Efectos de la Globalizacion sobre la Inflacion y la politica Monetaria Domestica
    [Globalization Effect on both Inflation and Domestic Monetary Policy]    ," MPRA Paper 9242, University Library of Munich, Germany. [Downloadable!]
  21. Andreas Hornstein, 2007. "Evolving inflation dynamics and the New Keynesian Phillips Curve," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 317-339. [Downloadable!]
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