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/lp/american-economic-association/inflation-gap-persistence-in-the-us-4wlyZcRAoT
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- Publisher
- American Economic Association
- Copyright
- Copyright © 2010 by the American Economic Association
- Subject
- Articles
- ISSN
- 1945-7715
- eISSN
- 1945-7715
- DOI
- 10.1257/mac.2.1.43
- Publisher site
- See Article on Publisher Site
Abstract
Abstract We estimate vector autoregressions with drifting coefficients and stochastic volatility to investigate whether US inflation persistence has changed. We focus on the inflation gap, defined as the difference between inflation and trend inflation, and we measure persistence in terms of short- to medium-term predictability. We present evidence that inflation-gap persistence increased during the Great Inflation and that it fell after the Volcker disinflation. We interpret these changes using a dynamic new Keynesian model that highlights the importance of changes in the central bank's inflation target. (JEL E12, E31, E52, E58 )
Journal
American Economic Journal: Macroeconomics – American Economic Association
Published: Jan 1, 2010