Has the Inflation Process Changed?

41 Pages Posted: 8 May 2006

See all articles by Stephen G. Cecchetti

Stephen G. Cecchetti

Brandeis International Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Guy Debelle

Reserve Bank of Australia

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Inflation has been low in many countries for at least a decade. But have inflation processes changed in ways that would help make low inflation permanent? Using both aggregate and disaggregated inflation data, we find that the means of inflation processes have become smaller over the past two decades and that, allowing for these changes in the mean, their persistence has not declined much. Changes in monetary policy frameworks and recessions appear to have contributed to a reduction in the mean of inflation, but do not appear to have a meaningful impact on persistence, and there is some evidence that the shifts in inflation expectations are the proximate cause of the changes in the mean of inflation. These findings suggest that policy-makers should focus on maintaining credibility and carefully monitoring inflation expectations for any indication that they are rising.

Suggested Citation

Cecchetti, Stephen G. and Debelle, Guy, Has the Inflation Process Changed?. Economic Policy, Vol. 21, No. 46, pp. 311-352, April 2006. Available at SSRN: https://ssrn.com/abstract=895198 or http://dx.doi.org/10.1111/j.1468-0327.2006.00160.x

Stephen G. Cecchetti (Contact Author)

Brandeis International Business School ( email )

415 South Street
Waltham, MA 02453
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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212-720-8629 (Phone)
212-720-2630 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Guy Debelle

Reserve Bank of Australia ( email )

65, Martin Place
Sydney, NSW 2000

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