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Inflation Targeting: Could Bad Luck Explain Persistent One-Sided Misses?

Author

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  • Andreas Hornstein
  • Joseph R. Johnson
  • Karl Rhodes

Abstract

In January 2012, the Federal Open Market Committee set an explicit inflation target of 2 percent, but the annual inflation rate has been 0.25 percentage points or more below that target for the past 10 quarters. Extended periods of one-sided misses are common among inflation-targeting countries, but it is not clear whether these persistent deviations are caused by structural changes, bad policy or bad luck. Analysis of the statistical properties of the inflation process in the United States suggests that bad luck remains a plausible explanation for the FOMC's current string of one-sided misses.

Suggested Citation

  • Andreas Hornstein & Joseph R. Johnson & Karl Rhodes, 2015. "Inflation Targeting: Could Bad Luck Explain Persistent One-Sided Misses?," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, issue Sept.
    • Handle: RePEc:fip:fedreb:00032
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    File URL: https://www.richmondfed.org/-/media/richmondfedorg/publications/research/economic_brief/2015/pdf/eb_15-09.pdf
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    Cited by:

    1. Jeffrey M. Lacker, 2016. "What Monetary Policy Can Do," Cato Journal, Cato Journal, Cato Institute, vol. 36(2), pages 261-268, Spring/Su.

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