Estimating the Implicit Inflation Target [electronic resource] : An Application to U.S. Monetary Policy / Daniel Leigh.
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TextSeries: IMF Working Papers; Working Paper ; No. 05/77Publication details: Washington, D.C. : International Monetary Fund, 2005Description: 1 online resource (24 p.)ISBN: 145186096X :ISSN: 1018-5941Subject(s): Actual Inflation | Inflation Target | Inflation | Kalman Filter | Monetary Policy Rules | Taylor Rule | Japan | United StatesAdditional physical formats: Print Version:: Estimating the Implicit Inflation Target : An Application to U.S. Monetary PolicyOnline resources: IMF e-Library | IMF Book Store Abstract: This paper proposes a new method of estimating the Taylor rule with a time-varying implicit inflation target and a time-varying natural rate of interest. The inflation target and the natural rate are modeled as random walks and are estimated using maximum likelihood and the Kalman filter. I apply this method to U.S. monetary policy over the past 25 years and find considerable time variation in the implicit target, confirming hypotheses about "opportunistic disinflation" and the recent "deflation scare."
This paper proposes a new method of estimating the Taylor rule with a time-varying implicit inflation target and a time-varying natural rate of interest. The inflation target and the natural rate are modeled as random walks and are estimated using maximum likelihood and the Kalman filter. I apply this method to U.S. monetary policy over the past 25 years and find considerable time variation in the implicit target, confirming hypotheses about "opportunistic disinflation" and the recent "deflation scare."
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