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

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  • Castelnuovo, Efrem

Abstract

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.

Suggested Citation

  • Castelnuovo, Efrem, 2010. "Trend inflation and macroeconomic volatilities in the post-WWII U.S. economy," The North American Journal of Economics and Finance, Elsevier, vol. 21(1), pages 19-33, March.
  • Handle: RePEc:eee:ecofin:v:21:y:2010:i:1:p:19-33
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    Cited by:

    1. Franke, Reiner & Jang, Tae-Seok & Sacht, Stephen, 2015. "Moment matching versus Bayesian estimation: Backward-looking behaviour in a New-Keynesian baseline model," The North American Journal of Economics and Finance, Elsevier, vol. 31(C), pages 126-154.
    2. Jang, Tae-Seok & Sacht, Stephen, 2012. "Identification of animal spirits in a bounded rationality model: An application to the euro area," Economics Working Papers 2012-12, Christian-Albrechts-University of Kiel, Department of Economics.
    3. Di Bartolomeo, Giovanni & Giuli, Francesco, 2011. "Fiscal and monetary interaction under monetary policy uncertainty," European Journal of Political Economy, Elsevier, vol. 27(2), pages 369-375, June.
    4. Tae-Seok Jang & Stephen Sacht, 2016. "Animal Spirits and the Business Cycle: Empirical Evidence from Moment Matching," Metroeconomica, Wiley Blackwell, vol. 67(1), pages 76-113, February.
    5. Franke, Reiner & Jang, Tae-Seok & Sacht, Stephen, 2011. "Moment matching versus Bayesian estimation: Backward-looking behaviour in the new-Keynesian three-equations model," Economics Working Papers 2011-10, Christian-Albrechts-University of Kiel, Department of Economics.
    6. Hsu, Jason C., 2012. "What drives equity market non-participation?," The North American Journal of Economics and Finance, Elsevier, vol. 23(1), pages 86-114.
    7. Jang, Tae-Seok, 2012. "Structural estimation of the New-Keynesian Model: a formal test of backward- and forward-looking expectations," MPRA Paper 40278, University Library of Munich, Germany.
    8. Jang, Tae-Seok, 2012. "Structural estimation of the New-Keynesian model: A formal test of backward- and forward-looking behavior," Economics Working Papers 2012-07, Christian-Albrechts-University of Kiel, Department of Economics.
    9. Hamid Beladi & Avik Chakrabarti & Sugata Marjit, 2013. "Privatization and Strategic Mergers across Borders," Review of International Economics, Wiley Blackwell, vol. 21(3), pages 432-446, August.
    10. Jang, Tae-Seok, 2012. "Structural estimation of the New-Keynesian Model: a formal test of backward- and forward-looking expectations," MPRA Paper 39669, University Library of Munich, Germany.

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