Comments on "Understanding the Evolving Inflation Process"

I have to admit that I was apprehensive when Steve and Anil asked me to participate in this Forum and comment on a report on inflation dynamics, especially when I found out that one of the authors was going to be an old friend, Mark Watson. Mark is a pre-eminent time-series econometrician, so my first thought was that I was going to need to brush up on unit-root asymptotics. When the report arrived, however, I was pleasantly surprised to find a wide-ranging and insightful review of the historical behavior of inflation in the G-7 countries along with a thoughtful examination of alternative explanations of those dynamics. I think the Report makes a very useful contribution to applied monetary economics and illuminates well some of the key challenges in monetary policy today. The usual disclaimer applies here, however; the views I express are my own and not necessarily shared by my colleagues in the Federal Reserve System.