Reaching Inflation Stability
Antonio Moreno ()
No 269, Econometric Society 2004 North American Summer Meetings from Econometric Society
Inflation volatility has significantly declined over the last 20 years in the U.S. To find out why, I follow a structural approach. I estimate a complete New Keynesian model which imposes cross-equation restrictions on the time series of inflation, the output gap and the interest rate. I perform counterfactual analysis with two commonly used measures of inflation: Consumer Price Index (CPI) and Gross Domestic Product Deflator (GDPD). While the change in the propagation mechanism of the economy induced most of the CPI volatility drop, it played a smaller role in the reduction of GDPD volatility. Our maximum likelihood estimates imply that the most important factor behind the drop in inflation volatility was the more forward-looking price setting behavior of the 80s and 90s
Keywords: Inflation Volatility; Structural Model; Monetary Policy Rule (search for similar items in EconPapers)
JEL-codes: C32 C62 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Working Paper: Reaching Inflation Stability (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:nasm04:269
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