Inflation, unemployment, and the time consistency of the US monetary policy |
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Authors: | Adolfo Sachsida Jose Angelo Divino Daniel Oliveira Cajueiro |
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Affiliation: | a Institute for Applied Economic Research, SBS quadra 1, Ed. BNDES, sala 1007, 70.000-000 Brasilia-DF, Brazil b Graduate Program in Economics, Catholic University of Brasilia, SGAN 916, Modulo B. Zip: 70790-160, Brasilia, DF, Brazil c Department of Economics, University of Brasilia, Campus Darcy Ribeiro, 70.000-000 Brasilia-DF, Brazil |
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Abstract: | This paper verifies the performance of the Barro and Gordon (1983) model to explain the US inflation since the early 1950s. We divide the period from 1951:2 to 2010:2 according to each chairman of the Federal Reserve (FED). In addition, we consider aggregated periods, represented by pre-Volcker, Volcker-Greenspan, Greenspan-Bernanke, 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. |
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Keywords: | E52 E58 |
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