Fitting U.S. Trend Inflation: A Rolling-Window Approach

Efrem Castelnuovo

No 152, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: The role of trend inflation shocks for the U.S. macroeconomic dynamics is investigated by estimating two DSGE models of the business cycle. Policymakers are assumed to be concerned with a time-varying inflation target, which is modeled as a persistent and stochastic process. The identification of trend inflation shocks (as opposed to a number of alternative innovations) is achieved by exploiting the measure of trend inflation recently proposed by Arouba and Schorfheide (2011, American Economic Journal: Macroeconomics). Our main findings point to a substantial contribution of trend inflation shocks for the volatility of inflation and the policy rate. Such contribution is found to be time-dependent and highest during the mid-1970s to mid-1980s.

Keywords: trend inflation shocks; new-keynesian DSGE models; rolling-window approach great moderation. (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2012-10
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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Citations: View citations in EconPapers (10)

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Chapter: Fitting U.S. Trend Inflation: A Rolling-Window Approach (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0152

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