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The Rise and Fall of U.S. Inflation Persistence

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  • Meredith Beechey

    (Sveriges Riksbank)

  • Pär Österholm

    (Sveriges Riksbank)

Abstract

We estimate the path of inflation persistence in the United States over the last fifty years using an ARMA model of inflation with time-varying autoregressive parameter, motivated by the familiar New Keynesian framework. The estimated path of inflation persistence is consistent with a general reading of Federal Reserve history; inflation persistence is estimated to have declined substantially during Volcker and Greenspan’s tenures from the high persistence of the 1970s. Interpreted in light of the theoretical framework, the results suggest that the Federal Reserve has placed increasing weight on inflation stability in recent decades.

Suggested Citation

  • Meredith Beechey & Pär Österholm, 2012. "The Rise and Fall of U.S. Inflation Persistence," International Journal of Central Banking, International Journal of Central Banking, vol. 8(3), pages 55-86, September.
  • Handle: RePEc:ijc:ijcjou:y:2012:q:3:a:2
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    References listed on IDEAS

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    Cited by:

    1. Jiranyakul, Komain, 2015. "Exchange Rate Regimes and Persistence of Inflation in Thailand," MPRA Paper 66203, University Library of Munich, Germany.
    2. Martin Melecký & Diego Rodríguez Palenzuela & Ulf Söderström, 2009. "Inflation Target Transparency and the Macroeconomy," Central Banking, Analysis, and Economic Policies Book Series,in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy under Uncertainty and Learning, edition 1, volume 13, chapter 10, pages 371-411 Central Bank of Chile.
    3. Juan José Echavarría S. & Enrique López E. & Martha Misas A., 2013. "La persistencia estadística de la inflación en Colombia," Investigación Conjunta-Joint Research,in: Laura Inés D'Amato & Enrique López Enciso & María Teresa Ramírez Giraldo (ed.), Dinámica inflacionaria, persistencia y formación de precios y salarios, edition 1, chapter 6, pages 139-182 Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    4. Helge Berger & Pär Österholm, 2011. "Does Money Growth Granger Cause Inflation in the Euro Area? Evidence from Out‐of‐Sample Forecasts Using Bayesian VARs," The Economic Record, The Economic Society of Australia, vol. 87(276), pages 45-60, March.
    5. Jiranyakul, Komain, 2013. "Exchange Rate Regimes and Persistence of Inflation in Thailand," MPRA Paper 50109, University Library of Munich, Germany.
    6. Evzen Kocenda & Balazs Varga, 2016. "The impact of monetary strategies on inflation persistence," KIER Working Papers 938, Kyoto University, Institute of Economic Research.
    7. Antonio Noriega & Carlos Capistrán & Manuel Ramos-Francia, 2013. "On the dynamics of inflation persistence around the world," Empirical Economics, Springer, pages 1243-1265.
    8. Thomas Jonsson & Pär Österholm, 2012. "The properties of survey-based inflation expectations in Sweden," Empirical Economics, Springer, pages 79-94.
    9. Ohlsson, Henry, 2011. "The legacy of the Swedish gift and inheritance tax, 1884–2004," European Review of Economic History, Cambridge University Press, vol. 15(03), pages 539-569, December.
    10. Noriega Antonio E. & Ramos Francia Manuel, 2008. "A Note on the Dynamics of Persistence in US Inflation," Working Papers 2008-12, Banco de México.
    11. Beechey, Meredith & Österholm, Pär, 2010. "Forecasting inflation in an inflation-targeting regime: A role for informative steady-state priors," International Journal of Forecasting, Elsevier, vol. 26(2), pages 248-264, April.
    12. Jan-Erik Antipin & Farid Jimmy Boumediene & Pär Österholm, 2014. "Forecasting Inflation Using Constant Gain Least Squares," Australian Economic Papers, Wiley Blackwell, pages 2-15.
    13. Pankaj Kumar, 2015. "Can Univariate Time Series Models of Inflation Help Discriminate Between Alternative Sources of Inflation PersistenceAuthor-Name: Naveen Srinivasan," Working Papers 2015-104, Madras School of Economics,Chennai,India.
    14. Edward N. Gamber & Jeffrey P. Liebner & Julie K. Smith, 2016. "Inflation persistence: revisited," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 9(1), pages 25-44.
    15. Easaw, Joshy & Golinelli, Roberto, 2014. "Inflation Expectations and the Two Forms of Inattentiveness," Cardiff Economics Working Papers E2014/21, Cardiff University, Cardiff Business School, Economics Section.
    16. Berger, Helge & Österholm, Pär, 2008. "Does money growth granger-cause inflation in the Euro Area? Evidence from output-of-sample forecasts using Bayesian VARs," Discussion Papers 2008/10, Free University Berlin, School of Business & Economics.
    17. Beechey, Meredith & Österholm, Pär, 2009. "Time-varying inflation persistence in the Euro area," Economic Modelling, Elsevier, vol. 26(2), pages 532-535, March.
    18. Noriega, Antonio E. & Ramos-Francia, Manuel, 2009. "The dynamics of persistence in US inflation," Economics Letters, Elsevier, vol. 105(2), pages 168-172, November.
    19. Gamber, Edward N. & Smith, Julie K. & Eftimoiu, Raluca, 2015. "The dynamic relationship between core and headline inflation," Journal of Economics and Business, Elsevier, vol. 81(C), pages 38-53.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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