Learning and the Great Inflation
We respond to the challenge of explaining the Great Inflation by building a coherent framework in which both learning and uncertainty play a central role. At the heart of our story is a Federal Reserve that learns and then disregards the Phillips curve as in Sargent's Conquest of American Inflation, but at all times takes into account that its view of the world is subject to considerable uncertainties. Allowing Federal Reserve policy to react to these perceived uncertainties improves our ability to explain the Great Inflation with a learning model. Bayesian MCMC estimation results are encouraging and favour a model where policy reacts to uncertainty over a model where uncertainty is ignored. The posterior likelihood is higher and the internal Federal Reserve forecasts implied by the model are closer to those reported in the Greenbook.
|Date of creation:||Apr 2007|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Timothy Cogley & Thomas J. Sargent, 2005.
"Drift and Volatilities: Monetary Policies and Outcomes in the Post WWII U.S,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 262-302, April.
- Timothy Cogley & Thomas Sargent, "undated". "Drifts and Volatilities: Monetary Policies and Outcomes in the Post WWII US," Working Papers 2133503, Department of Economics, W. P. Carey School of Business, Arizona State University.
- Timothy Cogley & Thomas J. Sargent, 2003. "Drifts and volatilities: monetary policies and outcomes in the post WWII U.S," FRB Atlanta Working Paper 2003-25, Federal Reserve Bank of Atlanta.
- Thomas J. Sargent & Noah Williams, 2005. "Impacts of Priors on Convergence and Escapes from Nash Inflation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 360-391, April.
- Thomas J. Sargent & Noah Williams, 2003. "Impacts of priors on convergence and escapes from Nash inflation," FRB Atlanta Working Paper 2003-14, Federal Reserve Bank of Atlanta.
- Giorgio E. Primiceri, 2006. "Why Inflation Rose and Fell: Policy-Makers' Beliefs and U. S. Postwar Stabilization Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 121(3), pages 867-901.
- Giorgio Primiceri, 2005. "Why Inflation Rose and Fell: Policymakers' Beliefs and US Postwar Stabilization Policy," NBER Working Papers 11147, National Bureau of Economic Research, Inc.
- Sargent, Thomas J. & Cogley, Timothy, 2005. "The conquest of U.S. inflation: learning and robustness to model uncertainty," Working Paper Series 478, European Central Bank.
- Craine, Roger, 1979. "Optimal monetary policy with uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 1(1), pages 59-83, February.
- William Poole & Robert H. Rasche, 2002. "Flation," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 1-6.
- In-Koo Cho & Noah Williams & Thomas J. Sargent, 2002. "Escaping Nash Inflation," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 1-40.
- Cho, In-Koo & Sargent, Thomas J., 2000. "Escaping Nash inflation," Working Paper Series 0023, European Central Bank.
- Thomas Sargent & Noah Williams & Tao Zha, 2006. "Shocks and Government Beliefs: The Rise and Fall of American Inflation," American Economic Review, American Economic Association, vol. 96(4), pages 1193-1224, September.
- Thomas J. Sargent & Noah Williams & Tao Zha, 2004. "Shocks and government beliefs: the rise and fall of American inflation," FRB Atlanta Working Paper 2004-22, Federal Reserve Bank of Atlanta.
- Thomas Sargent & Noah Williams & Tao Zha, 2004. "Shocks and Government Beliefs: The Rise and Fall of American Inflation," NBER Working Papers 10764, National Bureau of Economic Research, Inc.
- Sack, Brian, 2000. "Does the fed act gradually? A VAR analysis," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 229-256, August. Full references (including those not matched with items on IDEAS)