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US Inflation 1980 - 2016. A Good Old Quantity Theory Approach

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  • Olivo, Victor

Abstract

This paper presents and discusses the econometric estimation of several models of inflation that follow the New Keynesian (NK) approach, and compares the results with those obtained with a model based on the quantity theory. The period of estimation is from the first quarter of 1980 until the fourth quarter of 2016. The main finding of the paper is that modeling inflation following a quantity theory approach produces a better overall explanation of the dynamics of the US inflation for the period under analysis than the ubiquitous New Keynesian models. Additionally, the quantity theory approach beats the New Keynesian models in offering a more coherent narrative of the relative deceleration that inflation has exhibited since the financial crisis (the so-called inflation puzzle).

Suggested Citation

  • Olivo, Victor, 2018. "US Inflation 1980 - 2016. A Good Old Quantity Theory Approach," MPRA Paper 84054, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:84054
    as

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    File URL: https://mpra.ub.uni-muenchen.de/84054/1/MPRA_paper_84054.pdf
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    References listed on IDEAS

    as
    1. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, December.
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    More about this item

    Keywords

    Central banks; inflation; monetary policy; Phillips curve; money supply; velocity of money; interest rates;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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