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American Economic Journal: Macroeconomics: Vol. 2 No. 1 (January 2010)

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Inflation-Gap Persistence in the US

Article Citation

Cogley, Timothy, Giorgio E. Primiceri, and Thomas J. Sargent. 2010. "Inflation-Gap Persistence in the US." American Economic Journal: Macroeconomics, 2(1): 43-69.

DOI: 10.1257/mac.2.1.43

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)

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Authors

Cogley, Timothy (NYU)
Primiceri, Giorgio E. (Northwestern U)
Sargent, Thomas J. (NYU and Hoover Institution, Stanford U)

JEL Classifications

E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian
E31: Price Level; Inflation; Deflation
E52: Monetary Policy
E58: Central Banks and Their Policies

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American Economic Journal: Macroeconomics


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