The Rise, Fall and Stabilization of U.S. Inflation: Shifting Regimes and Evolving Reputation

Robert King () and Yang K. Lu

No 29585, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The rise, fall, and stabilization of US inflation between 1969 and 2005 is consistent with a model of shifting policy regimes that features a forward-looking New Keynesian Phillips curve, policymakers that can or cannot commit, and private sector learning about policymaker type. Using model-implied inflation forecasting rules to extract state variables from the inflation forecasts in the Survey of Professional Forecasters, we provide evidence that policy regimes without commitment prevailed before 1980 and regimes with commitment prevailed afterward. With theory and quantification, we find that evolution of reputational capital is central to understanding the behavior of inflation.

JEL-codes: D82 D83 E52 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-mac and nep-mon
Note: EFG
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