Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/72022
Authors: 
Ball, Laurence
Year of Publication: 
2000
Series/Report no.: 
Working Papers, The Johns Hopkins University, Department of Economics 435
Abstract: 
Sticky-price models with rational expectations fail to capture the inertia in US inflation Models with backward-looking expectations capture current inflation behavior but are unlikely to fit other monetary regimes This paper seeks to overcome these problems with a near-rational model of expectations In the model agents make univariate forecasts of inflation: they use information on past inflation optimally but they ignore other variables The paper tests sticky-price models with near-rational expectations for two periods in US history the post-1960 period of persistent inflation and the period from 1879 to 1914 when inflation was not persistent The models fit the data for both periods; in contrast both rational-expectations and backward-looking models fail for at least one period.
Document Type: 
Working Paper

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