Measuring Price-Level Uncertainty and Instability in the U.S., 1850-2012

38 Pages Posted: 30 Mar 2015

See all articles by Timothy Cogley

Timothy Cogley

Leonard N. Stern School of Business - Department of Economics

Thomas J. Sargent

New York University (NYU) - Department of Economics, Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Date Written: November 14, 2014

Abstract

We use a flexible statistical model with stochastic volatilities to measure price level uncertainty and instability in the U.S. over the period 1850-2012. Major outbreaks associated with the Civil War, the two World Wars and Great Depression, and the Great Inflation and Great Recession alternate with three great price-level moderations, one near the turn of 20th century, another under Bretton Woods, and a third in the 1990s. Because periods of high and low volatility occur both before and after the Second World War, there is no evidence that the price level was systematically more stable or less uncertain in either era. Moderations sometimes involved a link to gold, but the experience of the 1990s proves that a well-managed fiat regime can achieve the same end.

Keywords: Price stability, inflation uncertainty, deflation risk, postwar stabilization, nonlinear signal extraction

JEL Classification: E31, C22

Suggested Citation

Cogley, Timothy and Sargent, Thomas J., Measuring Price-Level Uncertainty and Instability in the U.S., 1850-2012 (November 14, 2014). Bank of Korea WP 2014-33, Available at SSRN: https://ssrn.com/abstract=2580654 or http://dx.doi.org/10.2139/ssrn.2580654

Timothy Cogley (Contact Author)

Leonard N. Stern School of Business - Department of Economics ( email )

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530-752-1581 (Phone)
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Thomas J. Sargent

New York University (NYU) - Department of Economics, Leonard N. Stern School of Business ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-3548 (Phone)

National Bureau of Economic Research (NBER)

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