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Changes in the Federal Reserve's Inflation Target: Causes and Consequences

  • PETER N. IRELAND

This paper estimates a New Keynesian model to draw inferences about the behavior of the Federal Reserve's unobserved inflation target. The results indicate that the target rose from 1 1/4% in 1959 to over 8% in the mid to late 1970s before falling back below 2 1/2% in 2004. The results also provide some support for the hypothesis that over the entire post-war period, Federal Reserve policy has systematically translated short-run price pressures set off by supply-side shocks into more persistent movements in inflation itself, although considerable uncertainty remains about the true source of shifts in the inflation target. Copyright 2007 The Ohio State University.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 39 (2007)
Issue (Month): 8 (December)
Pages: 1851-1882

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Handle: RePEc:mcb:jmoncb:v:39:y:2007:i:8:p:1851-1882
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