Arbeitspapier
The conquest of U.S. inflation: learning and robustness to model uncertainty
Previous studies have interpreted the rise and fall of U.S. inflation after World War II in terms of the Fed's changing views about the natural rate hypothesis but have left an important question unanswered. Why was the Fed so slow to implement the low-inflation policy recommended by a natural rate model even after economists had developed statistical evidence strongly in its favor? Our answer features model uncertainty. Each period a central bank sets the systematic part of the inflation rate in light of updated probabilities that it assigns to three competing models of the Phillips curve. Cautious behavior induced by model uncertainty can explain why the central bank presided over the inflation of the 1970s even after the data had convinced it to place much the highest probability on the natural rate model.
- Language
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Englisch
- Bibliographic citation
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Series: ECB Working Paper ; No. 478
- Classification
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Wirtschaft
Price Level; Inflation; Deflation
Central Banks and Their Policies
Studies of Particular Policy Episodes
- Subject
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anticipated utility
Bayes' law
natural unemployment rate
Phillips curve
Robustness
Natürliche Arbeitslosenquote
Inflation
Phillips-Kurve
Risiko
Geldpolitik
USA
- Event
-
Geistige Schöpfung
- (who)
-
Cogley, Timothy
Sargent, Thomas J.
- Event
-
Veröffentlichung
- (who)
-
European Central Bank (ECB)
- (where)
-
Frankfurt a. M.
- (when)
-
2005
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Cogley, Timothy
- Sargent, Thomas J.
- European Central Bank (ECB)
Time of origin
- 2005
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