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Monetary Policy Regime Shifts and Inflation Persistence

Author

Listed:
  • Troy Davig

    (Federal Reserve Bank of Kansas City)

  • Taeyoung Doh

    (Federal Reserve Bank of Kansas City)

Abstract

Using Bayesian methods, we estimate a Markov-switching New Keynesian (MSNK) model that allows shifts in the monetary policy reaction coefficients and shock volatilities with U.S. data. We find that a more aggressive monetary policy regime was in place after the Volcker disinflation and before 1970 than during the Great Inflation of the 1970s. Our estimates also indicate that a low-volatility regime has been in place during most of the sample period after 1984. We connect the timing of the different regimes to a measure of inflation persistence.

Suggested Citation

  • Troy Davig & Taeyoung Doh, 2014. "Monetary Policy Regime Shifts and Inflation Persistence," The Review of Economics and Statistics, MIT Press, vol. 96(5), pages 862-875, December.
  • Handle: RePEc:tpr:restat:v:96:y:2014:i:5:p:862-875
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    More about this item

    Keywords

    Keynesian economics; monetary policy; Great Inflation; monetary policy regime;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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