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Inflation persistence, inflation targeting and the Great Moderation

Author

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  • Charles T. Carlstrom
  • Timothy S. Fuerst
  • Matthias Paustian

Abstract

There is growing evidence that the empirical Phillips curve within the US has changed significantly since the early 1980’s. In particular, inflation persistence has declined sharply. The 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, 2007. "Inflation persistence, inflation targeting and the Great Moderation," Working Paper 0721, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:0721
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    Keywords

    Inflation (Finance) ; Phillips curve ; Inflation targeting;

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