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The Rise and Fall of U.S. Inflation Persistence
Sveriges riksbank.
Sveriges riksbank.ORCID iD: 0000-0002-4840-7649
2012 (English)In: The International Journal of Central Banking, ISSN 1815-4654, E-ISSN 1815-7556, Vol. 8, no 3, 55-86 p.Article in journal (Refereed) Published
Abstract [en]

We estimate the path of inflation persistence in the United States over the last 50 years using an ARMA model of inflation with time-varying autoregressive parameter. The model is motivated by the familiar New-Keynesian framework which, paired with a common model of monetary-policy optimization, predicts that the central bank’s relative preference for output stability is a determinant of inflation persistence. As such, time variation of the relative preference for output stability can generate time-varying inflation persistence. The estimated ARMA model provides an estimate of the inflation objective and the path of inflation persistence. The estimated path of inflation persistence is consistent with a general reading of Federal Reserve history; inflation persistence is estimated to have declined substantially during Volcker and Greenspan’s tenures from the high persistence of the 1970s. Interpreted in light of the theoretical framework, the results suggest that the Federal Reserve has placed increasing weight on inflation stability in recent decades.

Place, publisher, year, edition, pages
2012. Vol. 8, no 3, 55-86 p.
Keyword [en]
Monetary policy, Central bank preferences, Time-varying parameters, Kalman filter
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:oru:diva-58331OAI: oai:DiVA.org:oru-58331DiVA: diva2:1116722
Available from: 2017-06-27 Created: 2017-06-27 Last updated: 2017-06-28

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  • apa
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  • sv-SE
  • Other locale
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