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A model of the FED's view on inflation

Thomas Hasenzagl, Fillipo Pellegrino, Lucrezia Reichlin () and Giovanni Ricco ()
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Fillipo Pellegrino: London School of Economics and Political Science (LSE)

No 3, Sciences Po publications from Sciences Po

Abstract: view often expressed by the Fed is that three components matter in inflation dynamics: a trend anchored by long run inflation expectations; a cycle connecting nominal and real variables; and oil prices. This paper proposes an econometric structural model of inflation formalising this view. Our findings point to a stable expectational trend, a sizeable and well identified Phillips curve and an oil cycle which, contrary to the standard rational expectation model, affects inflation via expectations without being reflected in the output gap. The latter often overpowers the Phillips curve. In fact, the joint dynamics of the Phillips curve cycle and the oil cycles explain the inflation puzzles of the last ten years.

Keywords: Phillips curve; Output gap; Unobserved Components; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: C11 C32 C53 E31 E32 E52 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-mac
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Related works:
Working Paper: A Model of the Fed's View on Inflation (2020) Downloads
Working Paper: A Model of the Fed's View on Inflation (2018) Downloads
Working Paper: A model of FED'S view on inflation (2018) Downloads
Working Paper: A Model of the Fed’s View on Inflation (2017) Downloads
Working Paper: A Model of the Fed’s View on Inflation (2017) Downloads
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