The Federal Reserve’s implicit inflation target and Macroeconomic dynamics. A SVAR analysis.

Mumtaz, Haroon and Theodoridis, Konstantinos (2017) The Federal Reserve’s implicit inflation target and Macroeconomic dynamics. A SVAR analysis. Working Paper. Lancaster University, Department of Economics, Lancaster.

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Abstract

This paper identifies shocks to the Federal Reserve's inflation target as VAR innovations that make the largest contribution to future movements in long-horizon inflation expectations. The effectiveness of this scheme is documented via Monte-Carlo experiments. The estimated impulse responses indicate that a positive shock to the target is associated with a large increase in inflation, GDP growth and long-term interest rates. Target shocks are estimated to be a vital factor behind the increase in inflation during the pre-1980 period and are an important driver of the decline in long-term interest rates over the last two decades.

Item Type:
Monograph (Working Paper)
Subjects:
ID Code:
86550
Deposited By:
Deposited On:
31 May 2017 15:54
Refereed?:
No
Published?:
Published
Last Modified:
17 Sep 2020 23:51