Showing results 1 to 5 of approximately 5.(refine search)
POSITIVE TREND INFLATION AND DETERMINACY IN A MEDIUM-SIZED NEW KEYNESIAN MODEL
This paper studies the challenge that increasing the inflation target poses to equilibrium determinacy in a medium-sized New Keynesian model without indexation fitted to the Great Moderation era. For moderate targets of the inflation rate, such as 2 or 4 percent, the probability of determinacy is near one conditional on the monetary policy rule of the estimated model. However, this probability drops significantly conditional on model-free estimates of the monetary policy rule based on real-time data. The difference is driven by the larger response of the federal funds rate to the output gap ...
A New Model of Inflation, Trend Inflation, and Long-Run Inflation Expectations
A knowledge of the level of trend inflation is key to many current policy decisions, and several methods of estimating trend inflation exist. This paper adds to the growing literature which uses survey-based long-run forecasts of inflation to estimate trend inflation. We develop a bivariate model of inflation and long-run forecasts of inflation which allows for the estimation of the link between trend inflation and the long-run forecast. Thus, our model allows for the possibilities that long-run forecasts taken from surveys can be equated with trend inflation, that the two are completely ...
Macroeconomic Changes with Declining Trend Inflation: Complementarity with the Superstar Firm Hypothesis
Recent studies indicate that, since 1980, the average markup and the profit share of income have increased, while the labor share and the investment share of spending have decreased. We examine the role of monetary policy in these changes as inflation has concurrently trended down. In a simple staggered price model with a non-CES aggregator of differentiated goods, a decline in trend inflation as measured since 1980 can account for a substantial portion of the changes. Moreover, introducing a rise in the productivity of “superstar firms” in the model can better explain not only the ...
The macroeconomics of trend inflation
Most macroeconomic models for monetary policy analysis are approximated around a zero inflation steady state, but most central banks target an inflation rate of about 2 percent. Many economists have recently proposed even higher inflation targets to reduce the incidence of the zero lower bound constraint on monetary policy. In this survey, we show that the conduct of monetary policy should be analyzed by appropriately accounting for the positive trend inflation targeted by policymakers. We first review empirical research on the evolution and dynamics of U.S. trend inflation and some proposed ...
Tracking Trend Inflation: Nonseasonally Adjusted Variants of the Median and Trimmed-Mean CPI
We make five contributions. We demonstrate that extant trimmed-mean and median CPI construction procedures depart from Bureau of Labor Statistics index construction procedures, and that the departures don't make much of a difference. We produce nonseasonally adjusted variants of the trimmed-mean CPI and median CPI, and demonstrate that these are useful real-time estimates of trend inflation; the NSA median CPI outperforms the median CPI, but both SA and NSA variants of the median and the trimmed-mean CPI easily dominate the so-called "core" CPI. We introduce superior ex post measures of trend ...