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Evolving U.S. monetary policy and the decline of inflation predictability

Journal

Journal of European Economic Association

Subject

Economics

Authors / Editors

Surico P;Benati L

Biographies

Publication Year

2008

Abstract

Based on a structural VAR with time-varying parameters and stochastic volatility for the post-WWII U.S., we document a negative correlation between the evolution of the long-run coefficient on inflation in the structural monetary rule and the evolution of the persistence and predictability of inflation relative to a trend component. Using an estimated sticky-price model, we show that a more aggressive policy stance towards inflation causes a decline in inflation predictability. (JEL: E37, E52, E58)

Available on ECCH

No


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