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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.

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.