Volume 2, Issue 3 September 2006

Monetary Policy and Inflation Dynamics

Abstract

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.

Authors

  • John M. Roberts

JEL codes

  • E31
  • E32
  • E52
  • E61
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