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Is the New Keynesian Explanation of the Great Dis-Inflation Consistent with the Cross Country Data?

  • Matthew Doyle

    (Department of Economics, University of Waterloo)

  • Jean-Paul Lam

    (Department of Economics, University of Waterloo)

A leading explanation of long run U.S. inflation trends attributes both the fall of inflation in the 1980s and the subsequent years of low and stable inflation to well run monetary policy pinning down inflationary expectations. Most other OECD economies experienced a similar rise and fall of inflation, as well as subsequent low and stable inflation over the same period. This observation has been under-explored in the literature. In this paper we exploit the international dimension of the fall of inflation to investigate the hypothesis that good monetary policy is responsible for recent inflation outcomes. Our results suggest that this theory is not compatible with the cross country data.

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Paper provided by University of Waterloo, Department of Economics in its series Working Papers with number 1010.

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Length: 38 pages
Date of creation: Oct 2010
Date of revision: Oct 2010
Handle: RePEc:wat:wpaper:1010
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