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Trend inflation and macroeconomic volatilities in the post-WWII U.S. economy

  • Castelnuovo, Efrem

This paper estimates a new-Keynesian model of the business cycle for the post-WWII U.S. economy and performs theoretical and counterfactual simulations to isolate the role played by systematic monetary policy and macroeconomic shocks in shaping the volatilities of inflation and output. Shocks to trend inflation are found to be a key-driver of raw inflation and the inflation gap. In contrast, shocks to output are likely to have played a major role as regards the volatility of the business cycle. Overall, my results work against the [`]good policy only' interpretation of the U.S. Great Moderation.

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File URL: http://www.sciencedirect.com/science/article/pii/S1062-9408(09)00043-6
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Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 21 (2010)
Issue (Month): 1 (March)
Pages: 19-33

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Handle: RePEc:eee:ecofin:v:21:y:2010:i:1:p:19-33
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620163

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