Estimating the Implicit Inflation Target: An Application to U.S. Monetary Policy

April 1, 2005

Preview Citation

Format: Chicago

Daniel Leigh. Estimating the Implicit Inflation Target: An Application to U.S. Monetary Policy, (USA: International Monetary Fund, 2005) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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."

Subject: Disinflation, Estimation techniques, Inflation, Inflation targeting, Output gap

Keywords: Inflation target, Rate of interest, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/077
Stock No:

WPIEA2005077
ISBN:

9781451860962
ISSN:

1018-5941

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