Working Paper: NBER ID: w29585
Authors: Robert G. King; Yang K. Lu
Abstract: The rise, fall, and stabilization of US inflation between 1969 and 2005 is consistent with a model of shifting policy regimes that features a forward-looking New Keynesian Phillips curve, policymakers that can or cannot commit, and private sector learning about policymaker type. Using model-implied inflation forecasting rules to extract state variables from the inflation forecasts in the Survey of Professional Forecasters, we provide evidence that policy regimes without commitment prevailed before 1980 and regimes with commitment prevailed afterward. With theory and quantification, we find that evolution of reputational capital is central to understanding the behavior of inflation.
Keywords: No keywords provided
JEL Codes: D82; D83; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| type of policymaker (non-committed) (D72) | inflation expectations (positive surprises) (E31) |
| type of policymaker (committed) (D72) | inflation outcomes (below forecasts) (E31) |
| reputational capital (E22) | inflation outcomes (E31) |
| state variables (reputation state) (P31) | model-implied inflation forecasts (E31) |
| deviations from intended inflation (opportunistic types) (E31) | deviations from intended inflation (committed types) (E31) |