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Inflation Persistence, Inflation Targeting, and the Great Moderation

12.01.07

There is growing evidence that the empirical Phillips curve within the US has changed significantly since the early 1980’s. In particular, inflation persistence has declined sharply. The paper demonstrates that this decline is consistent with a standard Dynamic New Keynesian (DNK) model in which: (i) the variability of technology shocks has declined, and (ii) the central bank more aggressively responds to inflation.

JEL code: E31, E37, E47

Key words: inflation persistence, Phillip’s curve, mark-up shocks, inflation targeting

Suggested citation: Carlstrom, Charles T., and Timothy S. Fuerst, 2007. "Inflation Persistence Inflation Targeting and the Great Moderation," Federal Reserve Bank of Cleveland, Working Paper no. 07-21.

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