TY  - JOUR
AU  - Goodfriend, Marvin
AU  - King, Robert G
TI  - The Great Inflation Drift
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14862
PY  - 2009
Y2  - April 2009
DO  - 10.3386/w14862
UR  - http://www.nber.org/papers/w14862
L1  - http://www.nber.org/papers/w14862.pdf
N1  - Author contact info:
Marvin Goodfriend
E-Mail: N/A user is deceased

Robert King
Department of Economics
Boston University
270 Bay State Road
Boston, MA  02215
Tel: 617/353-5941
E-Mail: rking@bu.edu
M1  - published as Marvin Goodfriend, Robert G. King. "The Great Inflation Drift," in Michael D. Bordo and Athanasios Orphanides, editors, "The Great Inflation: The Rebirth of Modern Central Banking" University of Chicago Press (2013)

M3  - presented at "The Great Inflation Conference", September 25-27, 2008
AB  - A standard statistical perspective on the U.S. Great Inflation is that it involves an increase in the stochastic trend rate of inflation, defined as the long-term forecast of inflation at each point in time. That perspective receives support from two sources: the behavior of long-term interest rates which are generally supposed to contain private sector forecasts, and statistical studies of U.S. inflation dynamics. We show that a textbook macroeconomic model delivers such a stochastic inflation trend, when there are shifts in the growth rate of capacity output, under two behavioral hypotheses about the central bank: (i) that it seeks to maintain output at capacity; and (ii) that it seeks to maintain continuity of the short-term interest rate. The theory then identifies major upswings in trend inflation with unexpectedly slow growth of capacity output. We interpret the rise of inflation in the U.S. from the perspective of this simple macroeconomic framework.
ER  -