Monetary Policy and Inflation Dynamics
by John M. Roberts
Federal Reserve Board
Since the early 1980s, the U.S. economy has changed in some important ways:
inflation now rises considerably less when unemployment is low, and the
volatility of output and inflation have fallen sharply. This paper examines
whether changes in monetary policy can account for these changes in the
economy. The results suggest that changes in monetary policy can account for
most or all of the change in the inflationunemployment relationship. In
addition, changes in policy can explain a large proportion of the reduction in
the volatility of the output gap.
JEL Codes: E31, E32, E52, E61.
(PDF, 38 pages 450 kb)