Investigating Inflation Persistence Across Monetary Regimes

Luca Benati
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Luca Benati: Monetary Policy Strategy Division, European Central Bank

The Quarterly Journal of Economics, 2008, vol. 123, issue 3, pages 1005-1060

Abstract: Under inflation, targeting estimates of the indexation parameter in hybrid New Keynesian Phillips curves are either equal to zero, or very low, in the United Kingdom, Canada, Sweden, and New Zealand. Analogous results hold for the Euro area under the European Monetary Union, and for Switzerland under the new monetary regime: under stable regimes with clearly defined nominal anchors, inflation appears to be purely forward-looking. These results question the notion that the intrinsic inflation persistence found in post-WWII U.S. data is structural in the sense of Lucas (Carnegie-Rochester Conference Series on Public Policy, 1 [1976], 19-46), and suggest that "hardwiring" inflation persistence in macroeconomic models is potentially misleading. (c) 2008 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

Date: 2008
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