The Rise and Fall of U.S. Inflation Persistence

Meredith Beechey and Pär Österholm ()
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Meredith Beechey: Monetary Affairs Division, Postal: Board of Governors of the Federal Reserve System, 20th and C Streets NW, , Washington DC 20551

No 2007:18, Working Paper Series from Uppsala University, Department of Economics

Abstract: This paper estimates the path of inflation persistence in the United States over the last 50 years and draws implications about the evolution of the Federal Reserve's monetary-policy preferences. Standard models of central bank optimization predict that the central bank's preference for output stability is a determinant of inflation persistence. Hence, time variation of that preference should be reflected in changes in inflation persistence. We estimate an ARMA(1,q) model with a time-varying autore- gressive parameter for monthly U.S. inflation data from 1955 to 2006.The coefficients provide an estimate of the inflation target and the path of inflation persistence. The estimated inflation target over the sample is approximately 2.8 percent and we find that inflation persistence declined substantially during Volcker and Greenspan's tenures to a level significantly less than one and significantly below that of the 1970s and early 1980s.

Keywords: Monetary policy; Central bank preferences; Inflation persistence; Time-varying parameters; Kalman filter (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
Date: 2007-07-12
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Related works:
Working Paper: The rise and fall of U.S. inflation persistence (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:uunewp:2007_018

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