Type
Working paper
Titre
A model of the FED's view on inflation
Auteur(s)
HASENZAGL Thomas - (Auteur)
PELLEGRINO Fillipo - London School of Economics and Political Science (LSE) (Auteur)
REICHLIN Lucrezia - London Business School (LBS) (Auteur)
RICCO Giovanni - Observatoire français des conjonctures économiques (Auteur)
Collection
OFCE Working Paper : 03
Mots clés
Phillips curve, Output gap, Unobserved Components, Bayesian estimation
Résumé
EN
view often expressed by the Fed is that three components matter in inflation dynamics: a trend anchored by long run inflation expectations; a cycle connecting nominal and real variables; and oil prices. This paper proposes an econometric structural model of inflation formalising this view. Our findings point to a stable expectational trend, a sizeable and well identified Phillips curve and an oil cycle which, contrary to the standard rational expectation model, affects inflation via expectations without being reflected in the output gap. The latter often overpowers the Phillips curve. In fact, the joint dynamics of the Phillips curve cycle and the oil cycles explain the inflation puzzles of the last ten years.
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