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Working Paper

Inflation Persistence, Inflation Targeting, and the Great Moderation

There is growing evidence that the empirical Phillips curve within the US has changed significantly since the early 1980s. 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.
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12.01.2007ISSN 2573-7953 WP 07-21DOI 10.26509/frbc-wp-200721
Keywords inflation persistence, phillip’s curve, mark-up shocks, inflation targeting
JEL Classification Codes E31, E37, E47

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

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. https://doi.org/10.26509/frbc-wp-200721