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Working Paper
The output gap, expected future inflation and inflation dynamics: another look
The empirical test of the output gap-based New Keynesian Phillips curve often has been implemented by estimating a hybrid specification that includes both lagged and future inflation and then by examining whether the estimated coefficient on future inflation is significantly larger than the one on lagged inflation. This article presents the evidence that indicates supply shocks significantly enter the hybrid specification. The results reported in previous research ? the output gap is irrelevant and expected future inflation is the major determinant of inflation ? arise if the hybrid ...
Journal Article
On the sources of movements in inflation expectations : a few insights from a VAR model
Using a VAR model that includes a survey measure of expected inflation, this article investigates the responses of expected inflation to temporary shocks to macroeconomic variables during three sample periods, 1953:1--1979:1, 1979:2--2001:1, and 1985:1--2007:1. Shocks to actual inflation, commodity prices, and expected inflation itself have been three major sources of movement in expected inflation, together explaining over 80 percent of the variability in expected inflation. Positive shocks to actual inflation, commodity prices, and expected inflation itself lead to increases in expected ...
Working Paper
Wage growth and the inflation process: an empirical note
A central proposition in the Phillips curve view of the inflation process is that prices are marked up over productivity-adjusted labor costs. If that is true, then long-run movements in prices and labor costs must be correlated. If long-run movements in a time series are modeled as a stochastic trend, then the above noted implication of the 'price markup' view is related to the concept of cointegration discussed in Granger (1986), which says that cointegrated multiple time series share common stochastic trends. The evidence reported here shows that time series measuring rates of change in ...
Journal Article
Oil prices and consumer spending
Journal Article
Why does consumer sentiment predict household spending?
Journal Article
An error-correction model of the long-term bond rate
Journal Article
Short-term headline-core inflation dynamics
This article investigates empirically short-term dynamics between headline and core measures of consumer price index and personal consumption expenditure inflation over three sample periods: 1959:1-1979:1, 1979:2-2001:2, and 1985:1-2007:2. Headline and core inflation measures are co-integrated, suggesting long-run co-movement. However, the ways these two variables adjust to each other in the short run and generate co-movement have changed across these sample periods. In the pre-1979 sample period, when a positive gap opens up with headline inflation rising above core inflation, the gap is ...
Working Paper
The bond rate and actual future inflation
The long-term bond rate is cointegrated with the actual one-period inflation rate during two sample periods, 1961Q1 to 1979Q3 and 1961Q1 to 1995Q4. This result indicates that in the long run the bond rate and actual inflation move together. The nature of short-run dynamic adjustments between these variables has, however, changed over time. In the pre-1979 period, when the bond rate rose above the one-period inflation rate, actual inflation accelerated. In the post-1979 period, however, the bond rate reverted back and actual inflation did not accelerate. Thus, the bond rate signaled future ...