Persistence, excess volatility, and volatility clusters in inflation

Michael Owyang

Review, 2001, vol. 83, issue Nov., 52 pages

Abstract: This paper presents a single, integrated model to explain the persistence and volatility characteristics of the U.S. inflation time series. Policymaker learning about a Markov-switching natural rate of unemployment in a neoclassical Phillips curve model with time-varying preferences produces inflation persistence, volatility clustering, and mean/variance correlation. The interaction between the policymaker?s preferences and the Phillips curve generates the first and last results. Policymaker learning produces clusters of volatility as the monetary authority resets the learning algorithm whenever a shock to the Phillips curve occurs. Simulations using parameters estimated via Gibbs sampling confirms the theory.

Keywords: time series analysis; Inflation (Finance); Econometric models (search for similar items in EconPapers)
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://files.stlouisfed.org/files/htdocs/publicat ... 1/11/41-52Owyang.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlrv:y:2001:i:nov.:p:41-52:n:v.83no.6

Access Statistics for this article

Review is currently edited by Juan M. Sanchez

More articles in Review from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().