Monetary Policy and Inflation Dynamics
46 Pages Posted: 19 Dec 2004
Date Written: October 2004
Abstract
Since the early 1980s, the United States economy has changed in some important ways: Inflation now rises considerably less when unemployment falls and the volatility of output and inflation have fallen sharply. This paper examines whether changes in monetary policy can account for these phenomena. The results suggest that changes in the parameters and shock volatility of monetary policy reaction functions can account for most or all of the change in the inflation-unemployment relationship. As in other work, monetary-policy changes can explain only a small portion of the output growth volatility decline. However, changes in policy can explain a large proportion of the reduction in the volatility of the output gap. In addition, a broader concept of monetary-policy changes - one that includes improvements in the central bank's ability to measure potential output - enhances the ability of monetary policy to account for the changes in the economy.
JEL Classification: E31, E32, E52, E61
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Inflation Dynamics: A Structural Econometric Analysis
By Jordi Galí and Mark Gertler
-
Some Evidence on the Importance of Sticky Prices
By Mark Bils and Peter J. Klenow
-
Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve
By N. Gregory Mankiw and Ricardo Reis
-
Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve
By N. Gregory Mankiw and Ricardo Reis
-
By Varadarajan V. Chari, Patrick J. Kehoe, ...
-
Real Rigidities and the Non-Neutrality of Money
By Laurence Ball and David H. Romer
-
By Jordi Galí, Mark Gertler, ...
-
Control of the Public Debt: A Requirement for Price Stability?