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Shocking Escapes

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  • Bruce McGough

Abstract

Sargent's (1999) model of inflation is amended to include real oil prices and used to study the impact of exogenous supply shocks on the inflation time-series. We analyse whether these shocks can trigger escape-like episodes. We consider unobserved permanent shocks to the natural rate of unemployment and observed permanent shocks to the mean real oil price. Favourable shocks to unemployment decrease the time to first escape; that is, escapes tend to occur much sooner in the presence of these shocks. Shocks to the mean real oil price cause the economy to move quickly to its new equilibrium. Copyright 2006 Royal Economic Society.

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2003 with number 294.

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Date of creation: 01 Aug 2003
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Handle: RePEc:sce:scecf3:294

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Keywords: Supply Shocks; Adaptive Learning; Self-Confirming Equilibrium; Mean Dynamics; Escape Route;

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  1. Thomas Sargent & Noah Williams & Tao Zha, 2006. "The Conquest of South American Inflation," NBER Working Papers 12606, National Bureau of Economic Research, Inc.
  2. Noah Williams, 2003. "Small Noise Asymptotics for a Stochastic Growth Model," Computing in Economics and Finance 2003, Society for Computational Economics 262, Society for Computational Economics.
  3. Cho, In-Koo & Sargent, Thomas J., 2000. "Escaping Nash inflation," Working Paper Series, European Central Bank 0023, European Central Bank.
  4. Lars Peter Hansen & Ellen R. McGrattan & Thomas J. Sargent, 1994. "Mechanics of forming and estimating dynamic linear economies," Staff Report, Federal Reserve Bank of Minneapolis 182, Federal Reserve Bank of Minneapolis.
  5. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, SUNY-Oswego, Department of Economics, number comp1, Spring.
  6. Song Chen, 2000. "Probability Density Function Estimation Using Gamma Kernels," Annals of the Institute of Statistical Mathematics, Springer, Springer, vol. 52(3), pages 471-480, September.
  7. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
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