Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/230407 
Year of Publication: 
2018
Series/Report no.: 
Cardiff Economics Working Papers No. E2018/1
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
This paper identifies shocks to the Federal ReserveÕs 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 inàation and long-term interest rates in the US and the industrialised world. 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
International transmission
JEL: 
C5
E1
E5
E6
Document Type: 
Working Paper

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