The [un]importance of forward-looking behavior in price specifications
The seminal work of Phelps, Taylor, and Calvo developed forward-looking models of price determination that imparted inertia to the price level. These models incorporate expectations of future prices and excess demand by imposing constraints (typically lag-lead symmetry constraints) that force future variables to enter the specification. In this paper, I test the empirical significance of future prices in specifications like those of Taylor. I find that expectations of future prices are empirically unimportant in explaining price and inflation behavior. However, the dynamics of a model that includes a purely backward-looking inflation specification differ significantly-and not altogether pleasingly-from those with a forward-looking specification.
|Date of creation:||1995|
|Date of revision:|
|Publication status:||Published in Journal of Money, Credit and Banking 29, no. 3 (August 1997): 338-50.|
|Contact details of provider:|| Postal: |
Web page: http://www.bos.frb.org/Email:
More information through EDIRC
|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.:
- Brayton, Flint & Mauskopf, Eileen, 1985. "The federal reserve board MPS quarterly econometric model of the US economy," Economic Modelling, Elsevier, vol. 2(3), pages 170-292, July.
- Bankim Chadha & Paul R. Masson & Guy Meredith, 1992.
"Models of Inflation and the Costs of Disinflation,"
IMF Staff Papers,
Palgrave Macmillan, vol. 39(2), pages 395-431, June.
- Fuhrer, Jeff & Moore, George, 1995.
The Quarterly Journal of Economics,
MIT Press, vol. 110(1), pages 127-59, February.
- Laurence Ball, 1993.
"What determines the sacrifice ratio?,"
93-21, Federal Reserve Bank of Philadelphia.
- Ben S. Bernanke & Alan S. Blinder, 1989.
"The federal funds rate and the channels of monetary transmission,"
89-10, Federal Reserve Bank of Philadelphia.
- Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
- Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
- Jeff Fuhrer & George Moore, 1989.
"Monetary policy rules and the indicator properties of asset prices,"
Finance and Economics Discussion Series
89, Board of Governors of the Federal Reserve System (U.S.).
- Fuhrer, Jeff & Moore, George, 1992. "Monetary policy rules and the indicator properties of asset prices," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 303-336, April.
- Edmund Phelps, 1978. "Disinflation without recession: Adaptive guideposts and monetary policy," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 114(4), pages 783-809, December.
When requesting a correction, please mention this item's handle: RePEc:fip:fedbwp:95-6. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio)
If references are entirely missing, you can add them using this form.