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Evolving U.S. Monetary Policy and The Decline of Inflation Predictability

Luca Benati () and Paolo Surico ()

Journal of the European Economic Association, 2008, vol. 6, issue 2-3, 634-646

Abstract: Based on a structural VAR with time-varying parameters and stochastic volatility for the post-WWII U.S., we document a negative correlation between the evolution of the long-run coefficient on inflation in the structural monetary rule and the evolution of the persistence and predictability of inflation relative to a trend component. Using an estimated sticky-price model, we show that a more aggressive policy stance towards inflation causes a decline in inflation predictability. (JEL: E37, E52, E58) (c) 2008 by the European Economic Association.

JEL-codes: E37 E52 E58 (search for similar items in EconPapers)
Date: 2008
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