Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/184771
Authors: 
Mumtaz, Haroon
Theodoridis, Konstantinos
Year of Publication: 
2017
Series/Report no.: 
Working Paper 820
Abstract: 
This paper identifies shocks to the Federal Reserve's inflation target as VAR innovations that make the largest contribution to future movements in long-horizon inflation expectations. The effectiveness of this scheme is documented via Monte-Carlo experiments. The estimated impulse responses indicate that a positive shock to the target is associated with a large increase in inflation, GDP growth and long-term interest rates. Target shocks are estimated to be a vital factor behind the increase in inflation during the pre-1980 period and are an important driver of the decline in long-term interest rates over the last two decades.
Subjects: 
SVAR
DSGE model
inflation target
JEL: 
C5
E1
E5
E6
Document Type: 
Working Paper
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