Working Paper: NBER ID: w12492
Authors: Peter N. Ireland
Abstract: This paper estimates a New Keynesian model to draw inferences about the behavior of the Federal Reserve's unobserved inflation target. The results indicate that the target rose from 1 1/4 percent in 1959 to over 8 percent in the mid-to-late 1970s before falling back below 2 1/2 percent in 2004. The results also provide some support for the hypothesis that over the entire postwar period, Federal Reserve policy has systematically translated short-run price pressures set off by supply-side shocks into more persistent movements in inflation itself, although considerable uncertainty remains about the true source of shifts in the inflation target.
Keywords: Inflation Target; Monetary Policy; New Keynesian Model
JEL Codes: E31; E32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal Reserve's inflation target increase (E52) | persistent inflation (E31) |
| supply-side shocks (E65) | persistent inflation movements (E31) |
| Federal Reserve's response to short-run price pressures (E52) | more persistent inflation (E31) |
| inflation target response to supply shocks (E31) | adjustment of inflation target (E63) |