U.S. Inflation Dynamics: What Drives Them Over Different Frequencies?

 
Author/Editor: Balakrishnan, Ravi ; Ouliaris, Sam
 
Publication Date: June 01, 2006
 
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Summary: This paper aims to improve the understanding of U.S. inflation dynamics by separating out structural from cyclical effects using frequency domain techniques. Most empirical studies of inflation dynamics do not distinguish between secular and cyclical movements, and we show that such a distinction is critical. In particular, we study traditional Phillips curve (TPC) and new Keynesian Phillips curve (NKPC) models of inflation, and conclude that the long-run secular decline in inflation cannot be explained in terms of changes in external trade and global factor markets. These variables tend to impact inflation primarily over the business cycle. We infer that the secular decline in inflation may well reflect improved monetary policy credibility and, thus, maintaining low inflation in the long run is closely linked to anchored inflation expectations.
 
Series: Working Paper No. 06/159
Subject(s): Inflation | United States | Monetary policy | Demand | Globalization | Economic models

Author's Keyword(s): U.S. Inflation | monetary policy credibility
 
English
Publication Date: June 01, 2006
ISBN/ISSN: 0 / 1934-7073 Format: Paper
Stock No: WPIEA2006159 Pages: 27
Price:
US$15.00 (Academic Rate:
US$15.00 )
 
 
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