Does the Time-Consistency Problem Explain the Behavior of Inflation in the United States?

Peter Ireland

No 415, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper derives the restrictions imposed by Barro and Gordon's theory of time-consistent monetary policy on a bivariate time-series model for inflation and unemployment and tests those restrictions using quarterly US data from 1960 through 1997. The results show that the data are consistent with the theory's implications for the long-run behavior of the two variables, indicating that the theory can explain inflation's initial rise and subsequent fall over the past four decades. The results also suggest that the theory must be extended to account more fully for the short-run dynamics that appear in the data.

Keywords: Time-consistency; Inflation; Unemployment (search for similar items in EconPapers)
JEL-codes: E31 E52 E61 (search for similar items in EconPapers)
Pages: 17 pages
Date: 1998-11-09
New Economics Papers: this item is included in nep-ets and nep-mon
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Does the time-consistency problem explain the behavior of inflation in the United States? (1999)
Software Item: Matlab code for Does the Time-Consistency Problem Explain the Behavior of Inflation in the United States? (1998)
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