Inflation, Unemployment, and the Time Consistency of the US Monetary Policy

16 Pages Posted: 30 Oct 2008

See all articles by Adolfo Sachsida

Adolfo Sachsida

Institute for Applied Economic Research (IPEA); Institute of Applied Economic Research (IPEA)

Jose Angelo Divino

Catholic University of Brasilia

Daniel O. Cajueiro

University of Brasilia - Department of Economics

Date Written: October 29, 2008

Abstract

This paper verifies the performance of the Barro and Gordon (1983) model to explain the US inflation since the early 1950's. We divide the period from 1951:2 to 2005:2 according to each chairman of the Federal Reserve (FED). In addition, we consider aggregated periods, represented by pre-, post-Volcker, and whole sample. A genetic algorithm of stochastic search is applied to reduce the sensitivity of the maximum likelihood estimator to the initial parameter values. Surprisingly, our results show that the time consistency problem explains the US inflation during the Greenspan chairmanship at the FED.

Keywords: Time consistency, Unemployment, Inflation

JEL Classification: E52, E58

Suggested Citation

Sachsida, Adolfo and Divino, Jose Angelo and Cajueiro, Daniel O., Inflation, Unemployment, and the Time Consistency of the US Monetary Policy (October 29, 2008). Available at SSRN: https://ssrn.com/abstract=1291725 or http://dx.doi.org/10.2139/ssrn.1291725

Adolfo Sachsida (Contact Author)

Institute for Applied Economic Research (IPEA) ( email )

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HOME PAGE: http://www.bdadolfo.blogspot.com

Institute of Applied Economic Research (IPEA) ( email )

Av. Pres. Antonio Carlos , 51 - 17 andar
Rio de Janeiro, RJ, 20020-010
Brazil

Jose Angelo Divino

Catholic University of Brasilia ( email )

SGAN 916
Office A-118
Brasilia, 70790160
Brazil
+55(61)34487135 (Phone)

Daniel O. Cajueiro

University of Brasilia - Department of Economics ( email )

Brazil

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