The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page The Rise and Fall of U.S. Inflation Persistence
Meredith Beechey and Par Osterholm

Abstract: This paper estimates the path of inflation persistence in the United States over the last 50 years and draws implications about the evolution of the Federal Reserve's monetary-policy preferences. Standard models of central-bank optimization predict persistent inflation outcomes. Time variation of the central bank's preference for output stability should be reflected in changes in inflation persistence. We estimate an ARMA(1,q) model with a time-varying autoregressive parameter for monthly U.S. inflation data from 1955 to 2006. The coefficients provide an estimate of the inflation target and the path of inflation persistence. The estimated inflation target over the sample is approximately 2.8 percent and we find that inflation persistence declined substantially during Volcker and Greenspan's tenures to a level significantly less than one and significantly below that of the 1970s and early 1980s.

Keywords: Monetary policy, central bank preferences, inflation persistence, time-varying parameters, Kalman filter

Full paper (373 KB PDF) | Full Paper (Screen Reader Version)

Home | FEDS | List of 2007 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: June 12, 2007