Evolving Reputation for Commitment: The Rise, Fall and Stabilization of US Inflation

Robert King () and Yang K. Lu

No 30763, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A parsimonious model of shifting policy regimes can simultaneously capture expected and actual US inflation during 1969-2005. Our model features a forward-looking New Keynesian Phillips curve and purposeful policymakers that can or cannot commit. Private sector learning about policymaker type leads to a reputation state variable. We use model inflation forecasting rules to extract state variables from SPF inflation forecasts. US inflation is tracked by optimal policy without commitment before 1981 and by optimal policy with commitment afterward. In theory and quantification, the interaction of private sector learning and optimal policy within regimes is central to expected and actual inflation.

JEL-codes: D82 E52 (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-cba and nep-mon
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