Uncertainty Over Models and Data: The Rise and Fall of American Inflation

Seth Pruitt ()

Journal of Money, Credit and Banking, 2012, vol. 44, issue 2‐3, 341-365

Abstract: Economic agents who are uncertain of their economic model learn, and this learning is sensitive to the presence of data uncertainty. I investigate this idea in a framework that successfully describes inflation as a learning Federal Reserve’s optimal policy but fails to satisfactorily motivate these policy shifts. I modify the framework to account for data uncertainty: the learning process is made more sluggish by its presence. Consequently, the estimated model provides an explanation for the rise and fall in inflation: the concurrent rise and fall in the perceived Philips curve trade‐off between inflation and unemployment.

Date: 2012
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https://doi.org/10.1111/j.1538-4616.2011.00490.x

Related works:
Journal Article: Uncertainty Over Models and Data: The Rise and Fall of American Inflation (2012)
Working Paper: Uncertainty over models and data: the rise and fall of American inflation (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:44:y:2012:i:2-3:p:341-365

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