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Working Paper
Inflation persistence
This paper examines the concept of inflation persistence in macroeconomic theory. It begins with a definition of persistence, emphasizing the difference between reduced-form and structural persistence. It then examines a number of empirical measures of reduced-form persistence, considering the possibility that persistence may have changed over time. The paper then examines the theoretical sources of persistence, distinguishing ?intrinsic? from ?inherited? persistence, and deriving a number of analytical results on persistence. It summarizes the implications for persistence from the ...
Working Paper
The role of expectations in U. S. inflation dynamics
A growing body of literature examines alternatives to the rational expectations hypothesis in applied macroeconomics. This paper continues this strand of research by examining the role survey expectations play in the inflation process and reports three principal findings. One, short-run inflation expectations appear to play a significant role in explaining U.S. inflation over the past 20?25 years. Two, long-run expectations generally do not appear to have a direct influence on U.S. inflation over the same period, although these longer expectations enter indirectly as a key determinant of the ...
Working Paper
Estimating forward looking Euler equations with GMM estimators: an optimal instruments approach
This paper compares different methods for estimating forward-looking output and inflation Euler equations and shows that weak identification can be an issue in conventional GMM estimation. The authors propose a GMM procedure that imposes the dynamic constraints implied by the forward-looking relation on the instruments set. This ?optimal instruments? procedure is more reliable than conventional GMM, and it provides a robust alternative to estimating dynamic macroeconomic relations. Empirical applications of this procedure suggest only a limited role for expectational terms.
Working Paper
Optimal monetary policy in a model with habit formation and explicit tax distortions.
A number of recent papers have explored monetary policy options, including inflation targeting and inflation forecast targeting (notably Svensson (1999a, 1999b, 2000)) and price level targeting (Wolman 2000, Batini and Yates 1999, Blinder 1999). Most papers explore "optimal" monetary policy in the context of a single model. However, a number of conclusions made in the literature depend strongly on the model specification used. In addition, most papers have used the efficient policy frontier concept to define optimal monetary policy. This paper investigates the behavior of a variety of small ...
Working Paper
Intrinsic and inherited inflation persistence
In the now conventional view of the inflation process, the New Keynesian Phillips Curve (NKPC) captures most of the persistence in inflation. The sources of persistence are twofold. First, the ?driving process? for inflation?the output gap or, more commonly, real marginal cost?is itself quite persistent, and a casual inspection of the NKPC reveals that inflation must ?inherit? this persistence. Second, a modest amount of backward-looking or indexing behavior imparts some ?intrinsic? persistence to inflation. This latter source is generally thought to be of less importance than the former, as ...
Conference Paper
Monetary policy in a low-inflation environment: a conference sponsored by the Federal Reserve Banks of Boston, New York, Cleveland, Richmond, Atlanta, St. Louis, and Minneapolis, and the Board of Governors of the Federal Reserve System, October 18-20, 1999
A diverse group of economists and policymakers gathered in Woodstock, Vermont, in October 1999 to discuss the conduct of monetary policy in a low-inflation environment. The conference was held at a time when many countries had successfully reduced their inflation rates to the low single digits, an outcome without recent historical precedent that raises important questions about the conduct of monetary policy.
Working Paper
Optimal monetary policy in a model of overlapping price contracts
This study estimates a model of overlapping nominal price contracts over three distinct monetary policy regimes, testing the stability of the parameters in the model across regimes. Upon finding a model that is stable over the three subsamples, the model then holds for the most recent monetary regime is used to compute the optimal policy frontier - the efficient combinations of output and inflation variances - and compared to actual policy performance. The study then evaluates the robustness of policy conclusions to particulars of the specification, and discusses the general properties that ...
Working Paper
Empirical estimates of changing inflation dynamics
This paper provides an array of empirical evidence bearing on potentially important changes in the dynamics of U.S. inflation. We examine the overall performance of Phillips curves relative to some well-known benchmarks, the efficiency with which the Federal Reserve's Greenbook forecasts of inflation use real activity information, and shifts in the key determinants of the reduced-form "triangle model" of inflation. We develop a structural model-based interpretation of observed reduced-form shifts and conduct a reduced-form assessment of the relationship between core and headline measures of ...
Discussion Paper
The Federal Reserve’s Review of Its Monetary Policy Framework: A Roadmap
In early 2019, the Federal Open Market Committee (FOMC or the Committee) launched a comprehensive review of its monetary policy framework (MPF)—the strategies, tools, and communication practices employed by the Federal Reserve to achieve its congressionally mandated goals of maximum employment and price stability.