Evolving U.S. monetary policy and the decline of inflation predictability

Arbeitspapier

Using a structural VAR with time-varying parameters and stochastic volatility on post-WWII U.S. data, we document a striking negative correlation between the evolution of the long-run coefficient on inflation in the monetary rule and the evolution of the persistence and predictability of inflation relative to a trend component. Using a standard sticky-price model, we show that a more aggressive policy stance towards inflation causes a decline in inflation predictability, providing a possible interpretation for the findings of the structural VAR.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 824

Classification and Topics

• Classification: Wirtschaft ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications ; Monetary Policy ; Central Banks and Their Policies
• Subject: Bayesian time-varying VARs ; frequency domain ; Great Inflation ; predictability ; sign restrictions ; Inflationsbekämpfung ; Regelbindung versus Diskretion ; Inflation ; Prognoseverfahren ; VAR-Modell ; Dynamisches Gleichgewicht ; Stochastischer Prozess ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Benati, Luca ; Surico, Paolo
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/153258
• Last update: 10.03.2025, 11:42 AM CET