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Inflation Persistence, Monetary Policy, and the Great Moderation

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  • CHARLES T. CARLSTROM
  • TIMOTHY S. FUERST
  • MATTHIAS PAUSTIAN

Abstract

There is growing evidence that the empirical Phillips curve within the United States has changed significantly since the early 1980s. In particular, inflation persistence has declined sharply. This paper demonstrates that this decline is consistent with a standard dynamic New Keynesian (DNK) model in which: (i) the variability of technology shocks has declined and (ii) the central bank more aggressively responds to inflation.

Suggested Citation

  • Charles T. Carlstrom & Timothy S. Fuerst & Matthias Paustian, 2009. "Inflation Persistence, Monetary Policy, and the Great Moderation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(4), pages 767-786, June.
    • Handle: RePEc:wly:jmoncb:v:41:y:2009:i:4:p:767-786
    DOI: 10.1111/j.1538-4616.2009.00231.x
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