Fitting U.S. Trend Inflation: A Rolling-Window Approach

Efrem Castelnuovo

A chapter in DSGE Models in Macroeconomics: Estimation, Evaluation, and New Developments, 2012, pp 201-252 from Emerald Group Publishing Limited

Abstract: The role of trend inflation shocks for the U.S. macroeconomic dynamics is investigated by estimating two DSGE models of the business cycle. Policymakers are assumed to be concerned with a time-varying inflation target, which is modeled as a persistent and stochastic process. The identification of trend inflation shocks (as opposed to a number of alternative innovations) is achieved by exploiting the measure of trend inflation recently proposed by Aruoba and Schorfheide (2011). Our main findings point to a substantial contribution of trend inflation shocks for the volatility of inflation and the policy rate. Such contribution is found to be time dependent and highest during the mid-1970s to mid-1980s.

Keywords: Trend inflation shocks; new-Keynesian DSGE models; rolling-window approach; great moderation (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-9053(2012)0000028008

DOI: 10.1108/S0731-9053(2012)0000028008

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