Why inflation rose and fell
Subtitle: policymakers' beliefs and US postwar stabilization policy
By: Giorgio Primiceri.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 11147; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 11147.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Inflation (Finance) -- United States -- History -- 20th century.; Deflation (Finance) -- United States -- History -- 20th century.; Economic stabilization -- United States -- History -- 20th century.; United States -- Economic policy -- 20th century.
Description: "This paper provides an explanation for the run-up of U.S. inflation in the 1960s and 1970s and the sharp disinflation in the early 1980s, which standard macroeconomic models have difficulties in addressing.  I present a model in which rational policymakers learn about the behavior of the economy in real time and set stabilization policy optimally, conditional on their current beliefs.  The steady state associated with the self-confirming equilibrium of the model is characterized by low inflation.  However, prolonged episodes of high inflation ending with rapid disinflations can occur when policymakers underestimate both the natural rate of unemployment and the persistence of inflation in the Phillips curve.  I estimate the model using likelihood methods.  The estimation results show that the model accounts remarkably well for the evolution of policymakers' beliefs, stabilization policy and the postwar behavior of inflation and unemployment in the United States"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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