Monetary Policy, Trend Inflation and the Great Moderation: An Alternative Interpretation - Comment

Jonas E. Arias, Guido Ascari, Nicola Branzoli and Efrem Castelnuovo
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Jonas E. Arias: https://www.philadelphiafed.org/our-people/jonas-arias

No 1127, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Working with a small-scale calibrated New-Keynesian model, Coibion and Gorodnichenko (2011) find that the reduction in trend inflation during Volcker's mandate was a key factor behind the Great Moderation. We revisit this finding with an estimated New-Keynesian model with trend inflation and no indexation based on Christiano, Eichenbaum and Evans (2005). First, our simulations confirm Coibion and Gorodnichenko's (2011) main finding. Second, we show that a trend inflation-immune Taylor rule based on economic theory can avoid indeterminacy even at high levels of trend inflation such as those observed in the 1970s.

Keywords: Trend inflation; determinacy; monetary policy (search for similar items in EconPapers)
JEL-codes: C22 E30 E52 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2014-10-29
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1127

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