A Model of the Fed’s View on Inflation

 

 

Slides [PDFSlides NBER-NSF SBIES 2019 [PDF] MMCN 2019 Lightning Talk [PDF]

New Draft [PDF], Warwick wp [Link], OFCE wp [Link], CEPR Discussion Paper [Link]

 

A view often expressed by central banks is that three components matter for inflation dynamics: a trend anchored by long-run expectations, a cycle connecting nominal and real variables, and energy prices. This paper proposes a novel semi-structural econometric model informed by this understanding of inflation, incorporating key economic relations such as the Phillips curve and Okun's Law, and supported by inflation expectation data. We identify a stable expectational trend, a steep and well identified Phillips curve and a sizeable energy price component. The latter often overpowers the Phillips curve and explains the inflation puzzles of the last ten years.

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© 2018 by Giovanni Ricco.

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